Skip Navigation

Federal Communications Commission

English Display Options

Commission Document

Project Concord, Inc. v. NBCUniversal Media, LLC

Download Options

Released: December 5, 2012

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of
)
)

Project Concord, Inc.,
)
MB Docket No. 10-56
Claimant,
)
)

v.
)
)

NBCUniversal Media, LLC,
)
Respondent.
)

ORDER ON REVIEW

Adopted: November 13, 2012

Released: November 13, 2012
By the Chief, Media Bureau:
Heading
Paragraph #
I.
INTRODUCTION ........................................................................................................................... 1
II.
BACKGROUND ............................................................................................................................. 2
A. Comcast/NBCU Order Benchmark Condition........................................................................... 2
B. The PCI/NBCU Arbitration........................................................................................................ 6
III.
DISCUSSION ................................................................................................................................ 14
A. NBCU’s Petition for De Novo Review .................................................................................... 17
1. Films Less than One Year from Theatrical Release ........................................................... 17
2. NBCU’s Contractual Impediment Defense......................................................................... 25
a. Standard of Proof........................................................................................................... 27
b. PCI’s Online Service..................................................................................................... 31
c. NBCU Licensing Agreements....................................................................................... 42
(i) Film Agreements ..................................................................................................... 43
(a) [REDACTED] Agreements ............................................................................. 44
(b) [REDACTED] Agreements............................................................................. 51
(ii) Network Television Agreements............................................................................ 53
(a) [REDACTED] ................................................................................................ 54
(b) [REDACTED] ................................................................................................ 56
(iii) MVPD Agreements............................................................................................... 58
(a) [REDACTED] ................................................................................................ 59
(iv) Effect of Ruling on Final Agreement .................................................................... 61

B. PCI’s Partial Appeal................................................................................................................. 63
IV.
CONCLUSION.............................................................................................................................. 73
V.
ORDERING CLAUSES ................................................................................................................ 74

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

I.

INTRODUCTION

1.
In this Order, we consider a Petition filed by NBCUniversal Media, LLC (“NBCU”)
seeking de novo review of an arbitrator’s decision in favor of Project Concord, Inc. (“PCI”) in a dispute
under the Benchmark Condition of the Comcast/NBCU Order.1 The Benchmark Condition requires
NBCU to provide an online video distributor (“OVD”) with programming comparable to the
programming that the OVD receives from one of NBCU’s peer studios.2 We also consider PCI’s Partial
Appeal of the arbitrator’s decision.3 For the reasons set forth below, we grant in part and deny in part
NBCU’s Petition and we deny PCI’s Partial Appeal.4 Specifically, we reject NBCU’s argument that
Video Programming as defined in the Comcast/NBCU Order conditions must be read as excluding all
films for which less than one year has elapsed since their theatrical release (“first-year films”) and
conclude that these first-year films are included within the scope of the Benchmark Condition. In
addition, in considering NBCU’s asserted defense that it is prohibited under its licensing agreements with
other third parties from providing PCI with the requested programming, we clarify the correct standard to
be applied in evaluating a contractual defense to a claim under the Benchmark Condition. Specifically,
the applicable standard is whether NBCU has demonstrated by a preponderance of the evidence, based on
the language of the relevant licensing agreement and evidence regarding the interpretation of that
language, that NBCU’s provision of programming to the OVD would constitute a breach of a contract to
which Comcast Corporation (“Comcast”) or NBCU is a party, provided that the agreement allegedly


1 See Applications of Comcast Corporation, General Electric Company and NBC Universal, Inc. for Consent to
Assign Licenses and Transfer Control of Licensees, Memorandum Opinion and Order, 26 FCC Rcd 4238, 4360,
App. A., § IV.A.2.b (2011) (“Comcast/NBCU Order”); see also NBCUniversal Media, LLC, Petition for De Novo
Review, MB Docket No. 10-56 (July 16, 2012) (“NBCU Petition”). PCI filed an Opposition to the NBCU Petition
on July 31, 2012. See Project Concord, Inc., Opposition to Petition for De Novo Review, MB Docket No. 10-56
(filed July 31, 2012) (“PCI Opposition”). NBCU filed a Reply to the PCI Opposition on August 10, 2012. See
NBCUniversal Media, LLC, Reply, MB Docket No. 10-56 (filed Aug. 10, 2012) (“NBCU Reply”). The parties
requested confidential treatment of certain competitively sensitive information that appears in their pleadings and in
the underlying arbitration record. We have redacted certain information in the public version of this Order on
Review
in accordance with the parties’ requests for confidentiality.
2 See Comcast/NBCU Order, 26 FCC Rcd at 4359-60, App. A, § IV. A.2.b(i); see also id. at 4357, App. A, § I
(defining NBCU’s peer “Film Studios” as “Warner Bros. Entertainment, Fox Filmed Entertainment, Paramount
Motion Pictures, Sony Pictures Entertainment, Walt Disney Motion Pictures Group . . . and any other Person that is
one of the top five distributors (other than a C-NBCU Programmer) of Films by U.S. box office gross revenue in the
latest declared financial year”; defining “Production Studios” as “Warner Bros. Television, 20th Century Fox
Television, Paramount/CBS Television Studios, Sony Pictures Television, Disney-ABC Studios . . . and any other
Person that is one of the top five producers (other than a C-NBCU Programmer) of Video Programming for
distribution through Broadcast Networks or Cable Programmers by U.S. production revenue in the latest declared
financial year”).
3 See Project Concord, Inc., Partial Appeal, MB Docket No. 10-56 (July 16, 2012) (“PCI Partial Appeal”). NBCU
filed an Opposition to PCI’s Partial Appeal on July 31, 2012. See NBCUniversal Media, LLC, Opposition to Partial
Appeal, MB Docket No. 10-56 (filed July 31, 2012) (“NBCU Opposition”). PCI filed a Reply to the NBCU
Opposition on August 10, 2012. See Project Concord, Inc., Reply, MB Docket No. 10-56 (filed Aug. 10, 2012)
(“PCI Reply”).
4 On September 10, 2012, the Media Bureau issued an Order on its own motion extending for an additional 60 days
the deadline for issuing a decision on review in this proceeding, citing the substantial record compiled in the course
of this proceeding and the complexity of the issues. See Project Concord, Inc. v. NBCUniversal Media, LLC, Order,
DA 12-1468 (MB, Sept. 10, 2012); see also Comcast/NBCU Order, 26 FCC Rcd at 4369, App. A, § VII.E.1 (“The
Media Bureau shall issue its findings and conclusions not more than 60 days after receipt of the petition, which
period may be extended by the Media Bureau by one period of an additional 60 days.”).
2

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

breached is “consistent with reasonable, common industry practice.”5 Applying this standard, we
conclude that NBCU has demonstrated by a preponderance of the evidence that licensing certain films
and TV programs to PCI would constitute a breach of various NBCU licensing agreements that are
“consistent with reasonable, common industry practice.” Finally, we conclude that NBCU did not engage
in “unreasonable conduct” during the course of the arbitration proceeding that would warrant grant of
PCI’s request to shift its attorneys’ fees and other costs and expenses to NBCU.

II.

BACKGROUND

A.

Comcast/NBCU Order

Benchmark Condition

2.
In the Comcast/NBCU Order, the Commission granted the application of Comcast,
General Electric Company, and NBC Universal, Inc. to assign and transfer control of licenses from
General Electric Company to Comcast, subject to certain conditions.6 In response to concerns that the
combined entity, Comcast-NBCU or C-NBCU, would have incentives to hinder competition in the
growing online video distribution market, the Commission adopted conditions to ensure that OVDs would
have non-discriminatory access to C-NBCU programming.7 To that end, the conditions allow an OVD to
seek access to C-NBCU programming through either or both the MVPD Price Condition8 and the
Benchmark Condition.9 The Benchmark Condition applies when “an OVD has entered into at least one
agreement for Video Programming with a Broadcast Network, Cable Programmer, Production Studio or
Film Studio that is not an Affiliate of the OVD.”10 The Benchmark Condition obligates C-NBCU
programmers to provide a Qualified OVD11 with Online Video Programming that is comparable to the
Online Video Programming the OVD has received from a qualifying peer programmer.12 The


5 Comcast/NBCU Order, 26 FCC Rcd at 4361, 4368, App. A, §§ IV.B.1,VII.C.3.
6 See Comcast/NBCU Order, 26 FCC Rcd at 4240-43, ¶¶ 4-8.
7 See id. at 4272-73, ¶¶ 86-87.
8 The MVPD Price Condition applies when an OVD “is willing to pay the economic equivalent of the price, terms
and conditions on which C-NBCU Programmers provide Video Programming to MVPDs.” Id. at 4357, App. A, § I.
The MVPD Price Condition requires C-NBCU Programmers to “provide Online Video Programming sought by the
OVD to the extent that the Video Programming sought is materially the same as Video Programming that C-NBCU
Programmers offer to any Similarly Situated MVPD.” Id. at 4359, App. A, § IV.A.2.a(i). The MVPD Price
Condition is not at issue in this proceeding.
9 See id. at 4359-60, App. A, § IV.A.2.b.
10 Id. at 4355, App. A, § I.
11 A “Qualified OVD” is defined as “any OVD that meets either or both of (i) the MVPD Price Condition and (ii)
the Benchmark Condition.” Id. at 4358, App. A, § I.
12 See id. at 4359-60, App. A, § IV.A.2.b(i) (“For any Qualified OVD that meets the Benchmark Condition, C-
NBCU Programmers shall provide Online Video Programming sought by the OVD that constitutes Comparable
Programming.”) (footnotes omitted). “Online Video Programming” means “Video Programming” that any C-
NBCU programmer has the rights to enable others to display over the Internet or other IP-based transmission path.
See id. at 4357, App. A, § I. “Video Programming” is defined as:
programming provided by, or generally considered comparable to programming provided by, a
television broadcast station or cable network, regardless of the medium or method used for
distribution, and includes but is not limited to: programming prescheduled by the programming
provider (also known as scheduled programming or a linear feed); programming offered to
viewers on an on-demand, point-to-point basis (also known as video on demand (‘VOD’), pay per
view (‘PPV’) or transactional video on demand (‘TVOD’)); short programming segments (also
known as clips); programming that includes multiple video sources (also known as feeds,
3

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

Comparable Programming13 that C-NBCU must provide to the OVD must be on terms that are
“economic[ally] equivalent” to the terms that the OVD has received from the peer provider.14
3.
If negotiations fail to produce a mutually acceptable agreement for the provision of
online video programming as set forth in the Benchmark Condition, the OVD may initiate an arbitration
proceeding in accordance with the procedures in the Comcast/NBCU Order.15 Under these procedures,
each party must submit a “final offer” for carriage of the video programming at issue.16 Within 90 days
of the arbitrator’s appointment, the arbitrator must issue a decision choosing the final offer that “most
closely approximates the fair market value of the programming carriage rights at issue.”17
4.
An arbitration under the Benchmark Condition takes place in two phases if there is a
reasonable dispute as to: (i) whether an OVD is a Qualified OVD; (ii) what Comparable Programming a
Qualified OVD is entitled to; or (iii) whether certain authorized defenses, such as a contract defense,
would defeat a claim.18 The conditions direct the arbitrator to resolve these disputes in Phase I, except for
some disputes regarding whether an authorized defense would defeat a claim.19 If there is a dispute about
what Comparable Programming a Qualified OVD is entitled to, the parties must submit their final offers
regarding the scope of Comparable Programming, rather than final offers in the form of a contract for
carriage of the programming, at the commencement of the arbitration.20 The arbitrator then decides
during Phase 1 which of the two final offers for the scope of Comparable Programming most closely
approximates the appropriate Comparable Programming.21 After the conclusion of Phase 1, the parties
must then submit their final offers for agreements based on the Comparable Programming chosen by the





including camera angles); programming that includes video in different qualities or formats
(including high-definition and 3D); and Films for which a year or more has elapsed since their
theatrical release
.
See id. at 4358, App. A, § I (emphasis added).
13 Comparable Programming is defined, in part, as “Video Programming that is reasonably similar in kind and
amount.” Factors to be considered in determining whether programming is considered Comparable Programming
include “(i) the number of channels and/or shows; and (ii) the similarity of the value of the Video Programming, as
evidenced by ratings, affiliate fees and/or advertising revenues and the time elapsed since the programming was first
distributed.” Id. at 4356, App. A., § I.
14 Id. at 4360, App. A, § IV.A.2.b(ii).
15 See id. at 4360, App. A, § IV.A.3.
16 See id. at 4365, App. A, § VII.A.7, 10, 13.
17 Id. at 4366, App. A, § VII.B.2, 4.
18 Id. at 4367-8, App. A, § VII.C.1. Under Section VII.C.3 of the Comcast/NBCU Order conditions, NBCU may
raise as a defense to a claim under the Benchmark Condition (i) any of the factors listed in Section 76.1002(b) of the
Commission’s rules; or (ii) that providing Online Video Programming to the particular Qualified OVD would
constitute a breach of a contract to which Comcast or NBCU is a party (the “contractual impediment defense”). See
id.
at 4368, App. A, § VII.C.3.
19 See id. at 4367-8, App. A, § VII.C.1; see also infra n.59.
20 See Comcast/NBCU Order, 26 FCC Rcd at 4368, App. A, § VII.C.2.
21 See id.
4

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

arbitrator.22 At the conclusion of Phase 2, the arbitrator selects the final offer for carriage of the video
programming at issue.23
5.
Within 30 days of the date of publication of the arbitrator’s award, a party aggrieved by
the award may file with the Media Bureau a petition seeking de novo review.24 In reviewing the award,
the Media Bureau must examine the same evidence presented to the arbitrator.25 The Media Bureau must
issue its findings and conclusions not more than 60 days after receipt of the petition, which period may be
extended by one period of an additional 60 days.26

B.

The PCI/NBCU Arbitration

6.
PCI is an emerging OVD that plans to [REDACTED
] end of 2012.27
PCI’s planned service consists of an [REDACTED ] and a [REDACTED
].28 Through
the [REDACTED ], consumers will be able to rent or purchase a range of video programming content,
including new-release video-on-demand (“VOD”) movies and in-season television episodes.29
Consumers who rent or purchase film and television content in PCI’s [REDACTED
.30
.31
].32
7.
NBCU is one of the world’s largest media and entertainment companies.33 Among other
things, it owns and operates national cable and regional sports networks, the NBC and Telemundo
broadcast networks, local NBC-affiliated and Telemundo-affiliated broadcast stations, and Universal
Pictures, and produces, markets, and distributes cable network and broadcast television programming and
theatrical and non-theatrical films.34


22 See id.
23 See id. at 4368, App. A, § VII.C.1.
24 See id. at 4369, App. A, § VII.E.1.
25 See id., App. A, § VII.E.2.
26 See id., App. A, § VII.E.1.
27 See PCI Opposition at 3; Declaration of Sharon Peyer (Apr. 20, 2012) (“Peyer Phase 1 Declaration”) at ¶ 2.
28 See PCI Opposition at 3; Peyer Phase 1 Declaration at ¶ 2, 16.
29 See PCI Opposition at 3; Peyer Phase 1 Declaration at ¶ 3.
30 See PCI Opposition at 3; Peyer Phase 1 Declaration at ¶ 5.
31 See PCI Opposition at 3, 38-39; see also [REDACTED
],
NBCU Ex. 23, at 5 [REDACTED
].
32 See PCI Opposition at 39; Peyer Phase I Declaration at ¶ 18.
33 See Comcast/NBCU Order, 26 FCC Rcd at 4244, ¶ 13.
34 See id. at 4244-45, ¶¶ 13-15.
5

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

8.
In July 2011, PCI notified NBCU that it had entered into a Benchmark Agreement with a
peer studio, [REDACTED
], and desired a license from NBCU for comparable programming.35 On
October 28, 2011, after failing to reach an agreement with NBCU, PCI submitted a demand for arbitration
pursuant to the Comcast/NBCU Order conditions, which included PCI’s final offer for carriage of
NBCU’s programming.36 NBCU disputed the scope of Comparable Programming to which PCI was
entitled. Accordingly, on November 4, 2011, NBCU submitted its final offer for the scope of
Comparable Programming, rather than a final offer for carriage.37 On March 23, 2012, the arbitrator
appointed by the American Arbitration Association, Henry J. Silberberg (the “Arbitrator”), approved a
Confidentiality Agreement and Protective Order proposed by the parties.38
9.
The parties engaged in extensive document discovery.39 The arbitration was conducted in
two phases because NBCU (i) disputed whether PCI was a Qualified OVD; (ii) challenged the scope of
Comparable Programming to which PCI was entitled; and (iii) raised a contractual impediment defense.40
The parties submitted Phase 1 opening briefs on April 17, 2012,41 and rebuttal briefs on April 20, 2012.42


35 See PCI Opposition at 5; PCI Phase 1 Proposed Findings at ¶ 1.
36 See Project Concord, Inc. Demand for Arbitration and Final Offer (Oct. 28, 2011) (“PCI Phase 1 Final Offer”).
37 See Letter from David P. Murray, Willkie Farr & Gallagher, LLP, Counsel for NBCUniversal Media, LLC, to
Paris N. Earp, Commercial Case Manager, American Arbitration Association (Nov. 4, 2011) (“NBCU Phase I Final
Offer”).
38 See Confidentiality Agreement and Protective Order (March 23, 2012).
39 See Letter from Jean V. MacHarg, Patton Boggs LLP, Counsel for Project Concord, Inc., to David Murray,
Willkie Farr & Gallagher LLP, Counsel for NBCU Universal Media, LLP (Apr. 4, 2012); Letter from David
Murray, Willkie Farr & Gallagher LLP, Counsel for NBCU Universal Media, LLP, to Jean V. MacHarg, Patton
Boggs LLP, Counsel for Project Concord, Inc. (Apr. 4, 2012).
40 See Phase 1 Decision of Arbitrator (May 10, 2012) (“Phase 1 Decision”). The parties agreed, with the
Arbitrator’s approval, that evidence relating to NBCU’s contractual impediment defense should be presented and
considered in Phase 1 “notwithstanding the provision in the [Comcast/NBCU Order] Conditions that Phase 1 should
not be concerned with such Defense.” Id. at 4. The Arbitrator, however, subsequently concluded in his Phase 1
decision that a determination as to NBCU’s contractual impediment defense should be deferred to Phase 2. See id.;
see also infra n.59.
41 See Project Concord, Inc. Phase 1 Opening Brief (Apr. 17, 2012) (“PCI Phase 1 Opening Brief”); Opening
Position Statement of NBCUniversal Media, LLC (Apr. 17, 2012) (“NBCU Phase 1 Opening Brief”). NBCU’s
Phase 1 Opening Brief included expert reports from Steven Madoff, Consultant, and Robert Wunderlich, Ph.D.,
Discovery Economics, Inc., and declarations from M. Elizabeth Roberts, Chief Operating Officer, Universal Cable
Productions and Executive Vice President, Business Affairs, NBCUniversal Cable Entertainment and Cable Studios;
Bruce Casino, Senior Vice President, Cable and New Media Sales, NBCUniversal; and Ronald Lamprecht,
Executive Vice President, Sales Business Development, NBCUniversal Digital Distribution. See Expert Report of
Steven Madoff (Apr. 17, 2012) (“Madoff Phase 1 Expert Report”); Expert Report of Robert Wunderlich (Apr. 17,
2012) (“Wunderlich Phase 1 Expert Report”); Declaration of M. Elizabeth Roberts (Apr. 17, 2012) (“Roberts Phase
1 Declaration”); Declaration of Bruce Casino (Apr. 17, 2012) (“Casino Phase 1 Declaration”); and Declaration of
Ronald Lamprecht (Apr. 17, 2012) (“Lamprecht Phase 1 Declaration”).
42 See Project Concord, Inc. Rebuttal Brief (Apr. 20, 2012) (“PCI Phase 1 Rebuttal”); Rebuttal Statement of
NBCUniversal Media, LLC (Apr. 20, 2012) (“NBCU Phase 1 Rebuttal”). PCI’s Phase 1 Rebuttal Brief included
expert reports from Gary Marenzi, Founder and President, Marenzi and Associates, and Mark DeVitre,
Attorney/Founder, MDVLaw Group, and declarations from Lawrence Smith, Vice President of Content, Project
Concord, Inc., and Sharon Peyer, Co-Founder and Vice President of Business Development, Project Concord, Inc.
See Expert Report of Mark DeVitre (Apr. 20, 2012) (“DeVitre Phase 1 Expert Report”); Expert Report of Gary
Marenzi (Apr. 20, 2012) (“Marenzi Phase 1 Expert Report”); Declaration of Lawrence Smith (Apr. 20, 2012)
(“Smith Phase 1 Declaration”); and Declaration of Sharon Peyer (Apr. 20, 2012) (“Peyer Phase 1 Declaration”).
6

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

The Phase 1 hearing was held on April 24-25, 2012.43 The parties subsequently submitted post-hearing
briefs and proposed findings.44 The Arbitrator issued a Phase 1 decision on May 10, 2012.45
10.
In his Phase 1 decision, the Arbitrator concluded that: (i) PCI is a Qualified OVD; (ii)
“films for which less than a year has elapsed since their theatrical release” are not excluded from the
definition of “Video Programming” that NBCU must make available to PCI under the Comcast/NBCU
Order
conditions; (iii) the scope of Comparable Programming in PCI’s Phase 1 final offer more closely
approximated the Comparable Programming in the peer deal than the scope of Comparable Programming
in NBCU’s Phase 1 final offer; (iv) a determination as to whether NBCU proved its contractual
impediment defense would be deferred to Phase 2; and (v) if NBCU failed to prove its contractual
impediment defense in Phase 2, NBCU’s request for indemnity under the indemnity provision set forth in
Section IV.A.5 of the Comcast/NBCU Order conditions would be considered.46
11.
The parties submitted their Phase 2 final offers on May 16, 2012.47 The parties submitted
Phase 2 opening briefs on May 24, 2012,48 and rebuttal briefs on May 29, 2012.49 The Phase 2 hearing


43 See Phase 1 Decision at 1. During the Phase 1 hearing, the following witnesses testified on behalf of PCI:
Lawrence Smith, Vice President of Content, Project Concord, Inc.; Sharon Peyer, Co-Founder and Vice President of
Business Development, Project Concord, Inc.; Gary Marenzi, Founder and President, Marenzi and Associates; and
Mark DeVitre, Attorney/Founder, MDVLaw Group. See Testimony of Lawrence Smith, Hr’g Tr. at 249 (“Smith
Test.”); Testimony of Sharon Peyer, Hr’g Tr. at 353 (“Peyer Test.”); Testimony of Gary Marenzi, Hr.’g Tr. at 426
(“Marenzi Test.”); and Testimony of Mark DeVitre, Hr’g Tr. at 473 (“DeVitre Test.”). The following witnesses
appeared on behalf of NBCU: M. Elizabeth Roberts, Chief Operating Officer, Universal Cable Productions and
Executive Vice President, Business Affairs, NBCUniversal Cable Entertainment and Cable Studios; Bruce Casino,
Senior Vice President, Cable and New Media Sales, NBCUniversal; Ronald Lamprecht, Executive Vice President,
Sales Business Development, NBCUniversal Digital Distribution; Steven Madoff, Consultant; and Robert
Wunderlich, Ph.D., Discovery Economics, Inc. See Testimony of M. Elizabeth Roberts, Hr’g Tr. at 66 (“Roberts
Test.”); Testimony of Bruce Casino, Hr’g Tr. at 84 (“Casino Test.”); Testimony of Ronald Lamprecht, Hr’g Tr. at
124 (“Lamprecht Test.”); Testimony of Steven Madoff, Hr’g Tr. at 148 (“Madoff Test.”); and Testimony of Robert
Wunderlich, Hr’g Tr. at 189 (“Wunderlich Test.”).
44 See Project Concord, Inc. Phase 1 Post-Hearing Brief (May 4, 2012) (“PCI Phase 1 Post-Hearing Brief”); Project
Concord, Inc. Phase 1 Proposed Findings and Conclusions (May 4, 2012) (“PCI Phase 1 Proposed Findings”);
NBCUniversal Media, LLC Phase 1 Post-Hearing Brief (May 3, 2012) (“NBCU Phase 1 Post-Hearing Brief”).
45 See Phase 1 Decision.
46 See id. at 4; see also Comcast/NBCU Order, 26 FCC Rcd at 4360, App. A, § IV.A.5 (“For claims to programming
made under Section IV, if a reasonable dispute exists or arises regarding whether a C-NBCU Programmer has the
right to grant an OVD the right to the Video Programming at issue, the C-NBCU Programmer may require the
Qualified OVD to indemnify it and hold it harmless against any breach of contract, tort, copyright violation or other
claim arising out of any lack of right of the C-NBCU Programmer to grant the OVD the right to Video
Programming.”).
47 See Letter from David P. Murray, Willkie Farr & Gallagher LLP, Counsel for NBCUniversal Media, LLC, to
Arbitrator Henry J. Silberberg (May 16, 2012) (“NBCU Phase 2 Final Offer”); Email from Jean V. MacHarg, Patton
Boggs LLP, Counsel for Project Concord, Inc., to Arbitrator Henry J. Silberberg (May 16, 2012) (“PCI Phase 2
Final Offer”).
48 See Project Concord, Inc. Phase 2 Opening Brief (May 24, 2012) (“PCI Phase 2 Opening Brief”); Phase 2
Opening Statement of NBCUniversal Media, LLC (May 24, 2012) (“NBCU Phase 2 Opening Brief”). PCI’s Phase
2 Opening Brief included an expert report from Mark DeVitre, Attorney/Founder, MDVLaw Group. See Expert
Report of Mark DeVitre (May 24, 2012) (“DeVitre Phase 2 Expert Report”). NBCU’s Phase 2 Opening Brief
included expert reports from Steven Madoff, Consultant, and Robert Wunderlich, Ph.D., Discovery Economics, Inc.
See Expert Report of Steven Madoff (May 24, 2012) (“Madoff Phase 2 Expert Report”); Expert Report of Robert
Wunderlich (May 24, 2012) (“Wunderlich Phase 2 Expert Report”).
7

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

was held on May 30-31, 2012.50 The parties submitted post-hearing briefs and proposed findings for
Phase 2 on June 7, 2012.51 On June 15, 2012, the Arbitrator issued a Phase 2 arbitration award in favor of
PCI.52 In the Award, the Arbitrator concluded that: (i) PCI’s Phase 2 final offer most closely
approximates the fair market value of the programming carriage rights at issue; (ii) NBCU failed to meet
its burden of proof on its contractual impediment defense; and (iii) PCI must indemnify NBCU under
Section IV.A.5 of the Comcast/NBCU Order conditions.53 In addition, the Arbitrator denied both parties’
cost-shifting requests (i.e., requests for attorneys’ fees and other costs and expenses).54
12.
The Final Agreement selected by the Arbitrator provides that NBCU must license to PCI
on [REDACTED
] the following:
[REDACTED
55
].56





49 See Project Concord, Inc. Phase 2 Rebuttal Brief (May 29, 2012) (“PCI Phase 2 Rebuttal”); Phase 2 Rebuttal
Points of NBCUniversal Media, LLC (May 29, 2012) (“NBCU Phase 2 Rebuttal”). PCI’s Phase 2 Rebuttal Brief
included an expert report from Mark DeVitre, Attorney/Founder, MDVLaw Group. See Expert Report of Mark
DeVitre (May 29, 2012) (“DeVitre Phase 2 Rebuttal Expert Report”).
50 During the Phase 2 hearing, the following witness testified on behalf of PCI: Mark DeVitre. See Testimony of
Mark DeVitre, Hr’g Tr. at 893 (“DeVitre Phase 2 Test.”). The following witnesses testified on behalf of NBCU:
Steven Madoff and Robert Wunderlich. See Testimony of Steven Madoff, Hr’g Tr. at 805 (“Madoff Phase 2 Test.”);
Testimony of Robert Wunderlich, Hr’g Tr. at 661 (“Wunderlich Phase 2 Test.”).
51 See Project Concord, Inc. Phase 2 Closing Brief (June 7, 2012) (“PCI Phase 2 Closing Brief”); Project Concord,
Inc. Phase 2 Proposed Findings (June 7, 2012) (“PCI Phase 2 Proposed Findings”); Phase 2 Post-Hearing Brief of
NBCUniversal Media, LLC (June 7, 2012) (“NBCU Phase 2 Post-Hearing Brief”).
52 See Phase 2 Award of Arbitrator (June 15, 2012) (“Award”).
53 See id. at 3; see also supra n.46.
54 See Award at 3.
55 “Electronic sell through” is defined as the “delivery and/or exhibition of a motion picture, television show or other
entertainment product, solely on a non-Ad Supported basis, where the timing and/or selection of same is not pre-
determined, but rather is at the consumer’s discretion, and for which, and the right to permanently retain or have
access to same [sic], the consumer is charged a transactional fee.” Beverly Hills Bar Association, 2010 Institute on
Entertainment Law and Business CLE Materials, NBCU Ex. 11.
56 [REDACTED
] (“Final Agreement”).
8

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

NBCU was required to begin performing under the agreement immediately.57
13.
On July 31, 2012, NBCU filed a Petition seeking de novo review of the arbitration
award.58 NBCU raises two legal issues59 in its Petition: (1) whether the Arbitrator erred in ruling that
films less than one year from theatrical release are included in the definition of Video Programming that
NBCU must make available to PCI pursuant to the Benchmark Condition; and (2) whether the Arbitrator
erred in concluding that NBCU failed to satisfy its burden of proof with respect to its contractual
impediment defense.60 PCI also filed a Partial Appeal of the arbitration award on July 31, 2012.61 PCI
appeals the Arbitrator’s denial of its cost-shifting request, which included attorneys’ fees, expert witness
fees and expenses, and consultant fees.62

III.

DISCUSSION

14.
As discussed below, we conclude that films less than one year from theatrical release are
not excluded from the definition of “Video Programming” set forth in the Comcast-NBCU Order
conditions and therefore are not excluded from the scope of the Benchmark Condition. In addition, we
clarify that the correct standard to be applied in evaluating a contractual defense to a claim under the
Benchmark Condition is whether NBCU has demonstrated by a preponderance of the evidence, based on
the language of the relevant licensing agreement and evidence presented regarding the interpretation of
that language, that NBCU’s provision of programming to the OVD “would constitute a breach of a
contract” to which Comcast or NBCU is a party, provided that the agreement allegedly breached is
“consistent with reasonable, common industry practice.”63 Under this standard, NBCU is not required to


57 The Final Agreement was executed on [REDACTED]. See id. at ¶ 1; see also Comcast/NBCU Order, 26 FCC
Rcd at 4367, App. A, § VII.B.11 (“Following the decision of the arbitrator, the parties shall be bound by the final
offer chosen by the arbitrator, regardless of the pendency of any appeal unless the appeal nullifies or modifies the
award.”).
58 See NBCU Petition.
59 NBCU’s Petition also seeks clarification of whether the contract defenses authorized under the Benchmark
Condition should be decided during Phase 1 or Phase 2 of an arbitration, asserting that this issue is likely to arise in
future arbitrations. See id. at 9; see also supra n.40. We note that clarification of this issue will not affect the
resolution of the instant proceeding. Moreover, because this issue may affect the rights of other entities that are not
parties to this proceeding, we think that it would be appropriate to afford interested parties the opportunity to
comment on the issue. Accordingly, we decline to address this issue herein. To the extent that NBCU wishes to
pursue this issue, it should file a request for clarification and/or modification of the Comcast/NBCU Order. See
Comcast/NBCU Order
, 26 FCC Rcd at 4381, App. A, § XX n.11.
60 See NBCU Petition at 9.
61 See PCI Partial Appeal.
62 See id. at 2. During the arbitration, PCI submitted two declarations in support of its cost-shifting request. See
Project Concord, Inc. Declaration in Support of Request for Cost-Shifting (May 24, 2012) (“PCI First Cost-Shifting
Declaration”); Project Concord, Inc. Second Declaration in Support of Request for Cost-Shifting (June 7, 2012)
(“PCI Second Cost-Shifting Declaration”).
63 See Comcast/NBCU Order, 26 FCC Rcd at 4368, App. A, § VII.C.3. Section VII.C.3 of the Comcast/NBCU
Order
conditions states: “provided that any provision prohibited under Section IV.B shall not be a defense.” Id.
Section IV.B.1. of the conditions provides: “No C-NBCU Programmer shall enter into any agreement or
arrangement, or enforce any agreement or arrangement entered into after December 3, 2009, which forbids, limits,
or creates economic incentives to limit the distribution of such Video Programming through OVDs; provided that
nothing in this Section IV.B.1 prohibits a C-NBCU Programmer from entering into or enforcing agreements or
arrangements consistent with reasonable, common industry practice. Evidence relevant to what constitutes
reasonable, common industry practice may include (among other things) the contracting practices of a C-NBCU
9

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

establish that a licensee has or would in fact assert a breach of contract claim, and the existence of post-
breach remedies included in either of the parties’ final offers does not obviate the need to assess whether
NBCU has met its burden with respect to its contractual defense.
15.
With respect to NBCU’s contractual impediment defense, we conclude, based on our de
novo review of the record, that various licensing agreements put forth by NBCU restrict NBCU’s
concurrent exploitation of the programming covered by those agreements to certain types of business
models that meet one or both of the following requirements: (1) [REDACTED
] and (2) [REDACTED
]. We find that PCI’s service is [REDACTED ] within
the meaning of the terms of the contracts for purposes of this proceeding, only to the extent that
consumers use [REDACTED
]. We conclude that NBCU has demonstrated by a
preponderance of the evidence that licensing certain films and TV programs to PCI would constitute a
breach of these various licensing agreements, including its licensing agreements with [REDACTED],
which are “consistent with reasonable, common industry practice” that contractually restricts distribution
in stages and existed prior to the Comcast-NBCU transaction. We note, however, that if PCI agrees to
[REDACTED
], NBCU could provide the affected content to PCI without breaching its contractual
obligations to other licensees. Thus, nothing in our decision today relieves NBCU of its obligation to
make content available to PCI under the terms of the Final Agreement to the extent PCI [REDACTED
].
16.
Addressing PCI’s Partial Appeal, we conclude that NBCU did not engage in
“unreasonable conduct” during the course of the arbitration proceeding that would warrant grant of PCI’s
request to shift its attorneys’ fees and other costs and expenses to NBCU. This proceeding raised
complex issues and we find no evidence in the record that NBCU acted in bad faith or engaged in dilatory
or improper tactics.

A.

NBCU’s Petition for De Novo

Review

1.

Films Less than One Year from Theatrical Release

17.
As noted above, the Benchmark Condition requires C-NBCU programmers to provide a
Qualified OVD with Online Video Programming that is comparable to the Online Video Programming
the OVD has received from a qualifying peer programmer.64 “Online Video Programming” means
“Video Programming” that any C-NBCU programmer has the rights to enable others to display over the
Internet or other IP-based transmission path.65 “Video Programming” is defined as:





Programmer prior to December 3, 2009 and/or the contracting practices of peer companies.” Id. at 4361, App. A, §
IV.B.1.
64 See id. at 4359-60, App. A, § IV.A.2.b(i).
65 Id. at 4357, App. A, § I.
10

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

programming provided by, or generally considered comparable to programming provided
by, a television broadcast station or cable network, regardless of the medium or method
used for distribution, and includes but is not limited to: programming prescheduled by the
programming provider (also known as scheduled programming or a linear feed);
programming offered to viewers on an on-demand, point-to-point basis (also known as
video on demand (“VOD”), pay per view (“PPV”) or transactional video on demand
(“TVOD”)); short programming segments (also known as clips); programming that
includes multiple video sources (also known as feeds, including camera angles);
programming that includes video in different qualities or formats (including high-
definition and 3D); and Films for which a year or more has elapsed since their theatrical
release
.66
In addition, “Film” is defined as “a feature-length motion picture that has been theatrically released.”67
18.
During Phase 1 of the arbitration, NBCU argued that the definition of Video
Programming must be read as excluding all Films for which less than one year has elapsed since their
theatrical release (“first-year films”).68 The Arbitrator rejected this interpretation, finding that there is no
specific exclusion of first-year films and that if the Commission had intended to exclude such films, it
would have so stated.69 Additionally, the Arbitrator noted that “Films” are explicitly referred to as a
category of “Video Programming” in the definition of “Comparable Programming.”70 The Arbitrator
concluded that, while first-year films are not mentioned specifically in the definition of “Video
Programming,” the definition logically must be read as including first-year films both because of the
expansive “includes but is not limited to” language in the definition and because first-year films are
“programming offered to viewers on [a VOD, PPV or TVOD basis].”71 The Arbitrator also found that
any other conclusion would appear to frustrate the intent of the Benchmark Condition.72
19.
We reject NBCU’s argument that the definition of “Video Programming” clearly
excludes first-year films from the scope of the Benchmark Condition.73 According to NBCU, this
language was “specifically negotiated” during the governmental review of the Comcast-NBCU
transaction and reflects a deliberate policy choice by the Commission and the Department of Justice
(“DOJ”), in the parallel Benchmark Condition adopted in DOJ’s Final Judgment,74 to leave films during


66 Id. at 4358, App. A, § I (emphasis added).
67 Id. at 4357, App. A, § I.
68 See Award at 5; see also NBCU Phase 1 Opening Brief at 11.
69 See Award at 5.
70 See id. “Comparable Programming” is defined as “Video Programming that is reasonably similar in kind and
amount. . . . The following categories of Video Programming are not Comparable Programming . . . : (vii) Films
are not comparable to non-Film programming.” Comcast/NBCU Order, 26 FCC Rcd at 4356, App. A § I (emphasis
in original).
71 Award at 5; see also Comcast/NBCU Order, 26 FCC Rcd at 4358, App. A, § I (defining “Video Programming”).
72 See Award at 5.
73 See NBCU Petition at 11; NBCU Phase 1 Opening Brief at 11.
74 See U.S. v. Comcast Corp., No. 1:11-cv-00106, 2011 WL 5402137 (D.D.C. 2011) (“DOJ Final Judgment”) at 11,
§ IV.B. NBCU also contends that DOJ’s use of identical terms and language in its definitions of “Video
Programming” and “Film” confirms that neither agency intended to compel NBCU to license first-year films based
on the practices of a peer studio. See NBCU Petition at 12-13; see also DOJ Final Judgment at 4, § II.L (defining
“Film”) and 8, § II.EE (defining “Video Programming”); NBCU Phase 1 Opening Brief at 11.
11

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

the valuable first-year licensing “window” to existing industry practices.75 NBCU asserts that the two
agencies were aware that NBCU has longstanding and highly valuable [REDACTED

].76 Because of its contractual relationship with [REDACTED], NBCU states that it is not similarly
situated to the peer studios identified in the Benchmark Condition, some of which [REDACTED
].77 According to NBCU, the two agencies recognized that requiring NBCU to
match the licensing practices of a peer studio with respect to newly released films could place NBCU at
odds with its obligations to [REDACTED].78 NBCU asserts that the agencies therefore chose to exclude
first-year films from the scope of the Benchmark Condition and expressly codified this exclusion in the
Comcast/NBCU Order and the DOJ Final Judgment.79
20.
We find nothing in the Comcast/NBCU Order or the record of the proceeding to support
NBCU’s assertion that the exclusion of first-year films from the definition of “Video Programming” was
specifically negotiated during the Commission’s review of the Comcast-NBCU transaction.80 Nor is it
clear from the record why the Commission would have adopted such a broad exclusion. NBCU’s
licensing agreements with [REDACTED


75 See NBCU Petition at 2; NBCU Reply at 4-5; NBCU Phase 1 Post-Hearing Brief at 3-7. Film studios use a
distribution method known as “windowing” in licensing content for exhibition in order to recoup the film’s
production expenses and optimize their revenues. A film’s lifecycle typically goes as follows: The film begins its
“first run” in major theaters, where moviegoers pay premium ticket prices. The film may also have a “second run”
in a smaller number of theaters for the same or reduced ticket prices. The film is then licensed for non-theatrical
distribution, such as hotel or airline PPV exhibition. Next, the film is licensed for home video, where consumers
pay a retail price to purchase the film on DVD, Blu-ray, or EST, and residential PPV or TVOD, where consumers
pay a distinct fee to rent the film. After about a year from its theatrical release (or less, depending on the terms of
the relevant agreement between the studio and the pay television exhibitor), the film becomes available to premium
pay television exhibitors, such as HBO and Showtime, that charge consumers monthly subscription fees. The film is
eventually licensed to broadcast and cable networks for free, advertising-supported exhibition. There may also be
second and third pay “windows” where the film is restricted to premium pay television exhibition. Finally, the film
becomes part of a studio’s “library” and can be licensed at reduced rates. As part of the windowing process, in
addition to granting a licensee rights to exhibit the film during its “window,” the studios also typically grant the
licensee “holdbacks” to ensure that other licensees do not exploit the film in ways that conflict with the licensee’s
rights. For example, if a film is available on a free or ad-supported basis during the PPV/TVOD/EST window,
consumers may be unwilling to pay monthly subscription fees to premium pay television providers during the
premium pay television window. Thus, the studios will grant “holdbacks” to the premium pay television providers
prohibiting free or ad-supported exhibition during certain windows. See NBCU Phase 1 Opening Brief at 2-3;
Madoff Phase 1 Expert Report at ¶¶ 6-13. Similar windowing practices apply to television programming. See
Madoff Phase 1 Expert Report at ¶¶ 13-15.
76 See NBCU Petition at 15; NBCU Reply at 4; NBCU Phase 1 Opening Brief at 13; see also NBCU Phase 1 Post-
Hearing Brief at 7. An “output” agreement is an agreement in which the supplier is obligated to provide the
customer with all content that meets the agreed-upon criteria and is made available to all similarly situated
customers. For example, under an output agreement, if a supplier decides to provide its online non-exclusive
EST/VOD customers with particular film or television titles, it must make these same film or television titles
available to each online non-exclusive EST/VOD customer with whom it has the output agreement. See Madoff
Phase 2 Expert Report at 9-10.
77 See NBCU Petition at 15, NBCU Reply at 4.
78 See NBCU Petition at 15; NBCU Reply at 4-5; see also NBCU Phase 1 Post-Hearing Brief at 7.
79 See NBCU Petition at 15-16; NBCU Reply at 5; see also NBCU Phase 1 Post-Hearing Brief at 7.
80 See PCI Opposition at 15-16.
12

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

].81 Rather, these agreements prohibit NBCU from licensing [REDACTED
].82 Indeed, it is undisputed that NBCU currently licenses first-year
films to numerous OVDs for distribution on a TVOD basis.83 Thus, excluding all first-year films from
the scope of the Benchmark Condition would give NBCU significantly greater protection than is
necessary for it to meet its obligations under the [REDACTED] licensing agreements. Further, to the
extent that the provision of first-year films to a particular OVD would constitute a breach of NBCU’s
licensing agreements with [REDACTED] or another contract to which NBCU is a party, we note that the
arbitration procedures in the Comcast/NBCU Order explicitly authorize NBCU to raise a contractual
defense.84
21.
Moreover, as PCI points out, the online video conditions were adopted to protect
emerging OVDs from possible anticompetitive behavior by Comcast-NBCU, and excluding first-year
films from the scope of the Benchmark Condition would hinder the development of OVD competition.85
In this regard, PCI avers that first-year films “represent the vast majority of video programming
distributed on a TVOD or pay-per-view basis” and “generate the bulk of revenue for that method of
distribution of video programming.”86 Thus, PCI states, first-year films are indisputably “must-have”
programming for any TVOD service provider.87 Given the clear importance of first-year films to
emerging OVD services, as evidenced by NBCU’s own licensing agreements with online EST/VOD
services, we believe that it would frustrate the intent of the Benchmark Condition to interpret the
definition of Video Programming as expressly excluding first-year films.88
22.
NBCU asserts that, under “cardinal principles of statutory construction,” the Commission
must “give effect, if possible, to every clause and word of a statute,” so that “no clause, sentence, or word
shall be superfluous, void, or insignificant,” including the “Films for which a year or more has elapsed
since their theatrical release” language at the end of the Video Programming definition.89 NBCU
maintains that applying these principles here requires that “the plain words of the [Comcast/NBCU Order]
excluding first-year films be given their proper meaning and effect.”90 While we agree with NBCU that
an interpretation of the Video Programming definition must give proper meaning and effect to all the


81 See NBCU Petition at 4; see also Casino Declaration at Ex. A.
82 See NBCU Petition at 4; see also Casino Declaration at Ex. A.
83 NBCU acknowledges that it “already licenses [first-year] films to numerous online transactional VOD services
(e.g., iTunes, Vudu, YouTube) that compete with traditional PPV/VOD services.” See NBCU Reply at 7; see also
NBCU Exs. 40A-Z (NBCU’s licensing agreements with VOD/EST services); Hr’g Tr. at 51:6-10; Lamprecht Test.,
Hr’g Tr. at 135:8-11.
84 See supra n.18.
85 See PCI Opposition at 10-13; PCI Phase 1 Opening Brief at 9-11; see also Comcast/NBCU Order, 26 FCC Rcd at
4268-73, ¶¶ 78-88.
86 PCI Opposition at 13; see also PCI Phase 1 Post-Hearing Brief at 23.
87 See PCI Opposition at 13; see also Marenzi Test., Hr’g Tr. at 431:21-432:6; Smith Test., Hr’g Tr. at 252:1-7.
88 See supra n.83; see also PCI Opposition at 16 (“It is difficult to understand why the FCC would have exempted
the most important and valuable programming — programming that is critical to the ability of OVDs to compete
with Comcast’s traditional PPV and VOD services and programming widely available on other OVDs, without any
explanation
.”) (emphasis in original); PCI Phase 1 Post-Hearing Brief at 28.
89 NBCU Petition at 11-12 (citing Duncan v. Walker, 533 U.S. 167, 174 (2001) (internal citations omitted)); see also
NBCU Phase 1 Rebuttal Brief at 5.
90 NBCU Petition at 12; see NBCU Phase 1 Rebuttal Brief at 5-6.
13

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

language of the definition, we think NBCU’s reading fails to give proper meaning and effect to the
“includes but is not limited to” language at the beginning of the definition.91 The definition of Video
Programming “includes but is not limited to” the various listed categories of programming.92 The phrase
“includes but is not limited to” preceding a list is commonly understood to mean that the listed items are
illustrative, rather than exhaustive.93 Thus, the listing of “Films for which a year or more has elapsed
since their theatrical release” at the end of the definition is simply one example of the types of
programming included in the definition, not an exclusion of first-year films by negative inference.
23.
NBCU asserts that, since the Commission and DOJ intended “consistent” remedies,94 the
fact that DOJ did not use the “includes but is not limited to” language in its parallel definition of Video
Programming reinforces NBCU’s position that “the appearance of this general language in the
Commission’s definition was not intended – and cannot properly be read – to render the express carve-out
of first-year films superfluous.”95 We find the omission of the “includes but is not limited to” language
from DOJ’s definition of Video Programming is immaterial to our construction of the Commission’s
conditions. First, there are numerous differences in the specific language used by the Commission and
that used by DOJ both in the relevant Definitions and the Benchmark Conditions themselves.96 Despite
these language differences, we believe that the remedies adopted by the Commission and DOJ are
generally consistent and that any differences do not support a narrower interpretation of the Benchmark
Condition. Second, in any event, we question NBCU’s interpretation of DOJ’s definition of Video
Programming, as the DOJ Competitive Impact Statement explains that the Benchmark Condition was
intended to apply to all Comcast-NBCU programming: “Under the second option, set forth in Section
IV.B, the proposed Final Judgment requires the JV to license to an OVD, broadcast, cable, or film content
comparable in scope and quality…. The requirement applies to all JV content, even non-NBCU content,
in order to ensure that the JV cannot undermine the purposes of the proposed Final Judgment by shifting
content from one network to another.”97
24.
NBCU argues that, if the Commission intended to subject all films to compulsory
licensing under the Benchmark Condition, the definition of Video Programming would have simply said


91 See PCI Opposition at 18; see also PCI Phase 1 Opening Brief at 8.
92 See supra ¶ 17.
93 See e.g., Black’s Law Dictionary 777–78 (8th ed.2004) (“including but not limited to” “typically indicates a
partial list”) (emphasis added); see also Federal Land Bank v. Bismark Lumber Co., 314 U.S. 95, 100 (1941)
(“[T]he term ‘including’ is not one of all-embracing definition, but connotes simply an illustrative application of the
general principle.”); Turtle Island Restoration Network v. National Marine Fisheries Service, 340 F.3d 969, 975 (9th
Cir 2003) (concluding that Congress’s decision to use the words “including but not limited to” in the statute granting
the Fisheries Service the authority to issue fishing permits “contemplated that the list of potential obligations that the
United States had under the Agreement was not exhausted by those listed in the subsection”); U.S. v. Garrett, 720
F.2d 705, 709 (D.C. Cir. 1983) (finding that a list of “other proceedings” following the phrase “including but not
limited to” in a time computation statute “is merely illustrative and not intended to be exhaustive”).
94 See U.S. v. Comcast Corp., No. 1:11-cv-00106 (D.D.C., Jan. 18, 2011) (“DOJ Competitive Impact Statement”) at
7 (“The Department also consulted extensively with the FCC to ensure that the agencies conducted their reviews in a
coordinated and complementary fashion and created remedies that were both comprehensive and consistent.”).
95 NBCU Petition at 15; see NBCU Phase 1 Opening Brief at 12; see also DOJ Final Judgment at § II.EE (defining
“Video Programming”).
96 Cf. Comcast/NBCU Order, 26 FCC Rcd at 4355-58, App. A, § I and 4359-60, App. A, § IV.A with DOJ Final
Judgment at § II and IV.
97 DOJ Competitive Impact Statement at 31.
14

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

“Films,” not “Films for which a year or more has elapsed since their theatrical release.”98 We reject this
claim. The definition of Video Programming expressly includes all programming offered on a VOD,
PPV, or TVOD basis, which is the basis upon which many films, including first-year films, are offered.99
Thus, we think the better interpretation is that the Commission intended to include all Films within the
definition of Video Programming and therefore within the scope of the Benchmark Condition. In
addition, when read in the context of the entire condition, we think a more reasonable interpretation is that
the separate inclusion of “Films for which a year or more has elapsed since their theatrical release” at the
end of the definition of Video Programming is to ensure that the definition includes older theatrical films
that NBCU may have previously held back from VOD, PPV, or TVOD exhibition or that otherwise have
not previously been offered on a VOD, PPV, or TVOD basis.100 Moreover, to the extent the Commission
intended to exclude critical content such as first-year films from the definition of Video Programming,
and thus from the scope of the Benchmark Condition, we believe it would have done so expressly.101
Accordingly, we conclude that first-year films are included within the definition of Video Programming
and therefore are included within the scope of the Benchmark Condition.
2.

NBCU’s Contractual Impediment Defense

25.
Under the Comcast/NBCU Order, NBCU may raise as a defense to a claim under the
Benchmark Condition that providing the Online Video Programming to the particular Qualified OVD
“would constitute a breach of a contract” to which it is a party, provided that the exclusivity and
windowing provisions in such contracts are “consistent with reasonable, common industry practice.”102
NBCU must demonstrate by a preponderance of the evidence that the provision of Online Video
Programming to the particular Qualified OVD would constitute a breach of a contract.103 In the
arbitration proceeding, NBCU argued that licensing certain films and TV programs to PCI would
constitute a breach of numerous licensing agreements to which it is a party, including licensing
agreements with [REDACTED
].104 NBCU asserted that its
licensing agreements prohibit it from licensing [REDACTED] exhibition of certain films and TV
programs and require that [REDACTED ] for access to such content during the windows covered by


98 See NBCU Petition at 14; NBCU Reply at 9; NBCU Phase 1 Opening Brief at 12.
99 See PCI Opposition at 18; PCI Phase 1 Post-Hearing Brief at 23; see also supra ¶ 21.
100 For example, PCI points out that many older films were not originally shot in digital format, but are increasingly
being converted to digital format, which allows them to be viewed online. See PCI Opposition at 20; PCI Phase 1
Post-Hearing Brief at 25-26.
101 See supra ¶ 21.
102 Comcast/NBCU Order, 26 FCC Rcd at 4361, App. A, § IV.B.1; see also supra n.63 and infra Appendix A
(quoting § IV.B.1). There was no dispute between the parties as to whether the representative contracts provided by
NBCU, including the exclusivity and windowing provisions contained therein, are “consistent with reasonable,
common industry practice,” and neither side sought review of this issue. See NBCU Petition at 17. The
Comcast/NBCU Order conditions provide that evidence relevant to what constitutes “reasonable, common industry
practice may include (among other things) the contracting practices of a C-NBCU Programmer prior to December 3,
2009 and/or the contracting practices of peer companies.” Comcast/NBCU Order, 26 FCC Rcd at 4361, App. A, §
IV.B.1. In this regard, almost all of the contracts were entered into prior to the announcement of the Comcast-
NBCU transaction in December 2009. See NBCU Petition at 17 n.51.
103 See Comcast/NBCU Order, 26 FCC Rcd at 4368, App. A, § VII.C.3.
104 See NBCU Petition at 17; see also NBCU Phase 1 Opening Brief at 13-19. NBCU states that the reasonableness
of the 21 representative licensing agreements it presented during the arbitration, 17 of which were executed prior to
December 3, 2009, was not contested. See NBCU Petition at 17 & n.51.
15

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

these agreements.105 According to NBCU, providing certain films and TV programs to PCI would violate
these licensing agreements because PCI’s planned online distribution service is [REDACTED
].106 PCI argued that its service is not [REDACTED
] because its
[REDACTED
].107
26.
The Arbitrator concluded that NBCU failed to meet its burden of proof on its contractual
impediment defense as to each of the licensing agreements.108 Although the Arbitrator found that “[t]he
[REDACTED
],”109 he determined
that this finding does not by itself substantiate the defense as to any of NBCU’s licensing agreements and
that further factual proof is required.110 The Arbitrator noted that “none of NBCU’s counterparties in the
agreements has asserted or hinted at the assertion of a claim of breach or appear in any way to be
informed as to the scope of content PCI is seeking from NBCU” and thus found it speculative whether
any of the third-party licensees will assert a claim of breach of contract.111 The Arbitrator found NBCU’s
speculation about whether [REDACTED] or any of the other licensees will assert a claim of breach of
contract to be “glaringly inconsistent with the preponderance of the evidence burden which NBCU must
carry.”112 The Arbitrator also noted that the selected final offer provides NBCU some protections in the
event that a third-party licensee raises a claim of breach — specifically, [REDACTED
]
provisions — as well as an [REDACTED] provision.113 Finally, while the Arbitrator made some
“observations” as to whether he believed that the licensing agreements at issue would likely be breached
by NBCU’s provision of certain film and television content to PCI, he did not reach any conclusions on
this issue.114


105 See NBCU Petition at 17; see also NBCU Phase 1 Opening Brief at 13-19.
106 See NBCU Phase 1 Opening Brief at 13.
107 See PCI Phase 1 Rebuttal Brief at 11; DeVitre Phase 1 Expert Report at 7-8; Peyer Phase 1 Declaration at 1-3.
108 See Award at 10.
109 Phase 1 Decision at 10; Award at 10.
110 See Award at 10.
111 Id.
112 Id. at 9.
113 See id.; see also supra n.46. [REDACTED
]. See Final
Agreement at [REDACTED
]. See id. at [REDACTED].
114 See Award at 9-10. The Arbitrator’s failure to reach any conclusions was based, at least in part, on the
speculation of the parties as to whether any of NBCU’s licensees [REDACTED
]. With
16

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

a.

Standard of Proof

27.
NBCU argues that the Arbitrator applied an erroneous “breach first/fix later” standard in
requiring NBCU to license restricted programming to PCI first and then wait to see if another NBCU
licensee asserts a breach of contract claim.115 Rather, NBCU asserts, “[t]he language of the relevant
license agreements controls, and an arbitrator’s obligation is to assess the language in light of the
evidence presented and make a determination whether providing the restricted programming ‘would
constitute a breach of contract.’”116 PCI argues that the Arbitrator correctly found that NBCU did not
meet its burden of demonstrating by a preponderance of the evidence that providing its programming to
PCI would constitute a breach of any contract.117
28.
We conclude that the Arbitrator applied an incorrect standard of proof. The correct
standard to be applied in evaluating a contractual defense to a claim under the Benchmark Condition is
whether NBCU has demonstrated by a preponderance of the evidence, based on the language of the
relevant licensing agreement and evidence presented regarding the interpretation of that language, that
NBCU’s provision of programming to the OVD “would constitute a breach of a contract” to which
Comcast or NBCU is a party, provided that the agreement allegedly breached is “consistent with
reasonable, common industry practice.”118 In other words, evaluation of a contractual defense should
consist of an assessment of the relevant licensing agreement language, its proper interpretation, its
reasonableness, and evidence of its use throughout the industry. While evidence concerning past actions
taken by NBCU or a licensee to enforce a contract may be relevant to the interpretation of the contract,119
NBCU is not required to establish that a licensee has asserted or would in fact assert a breach of contract
claim. In addition, the existence of post-breach remedies120 included in either of the parties’ final offers
does not obviate the need to assess whether NBCU has met its burden with respect to its contractual
defense.
29.
As NBCU correctly notes, the contractual defense is intended in large part to protect the
legitimate contractual rights of other programming licensees.121 In the context of an arbitration
proceeding on a claim under the Benchmark Condition, it is unlikely that a third-party licensee will even
be aware that its contractual rights under a licensing agreement are in dispute, much less be in a position
to assert those rights.122 Other NBCU licensees are not parties to or participants in the arbitration, and





respect to the [REDACTED] agreements, he indicated that the language of the agreements “should not be construed
without the benefit of hearing, rather than speculating, [REDACTED
].” Id. at 10. Similarly, with respect to other network licensing agreements, he noted that
“it is premature and speculative [REDACTED
].” Id.
115 See NBCU Petition at 18.
116 Id.; see also Comcast/NBCU Order, 26 FCC Rcd at 4368, App. A, § VII.C.3.
117 See PCI Opposition at 26-31.
118 See Comcast/NBCU Order, 26 FCC Rcd at 4361, 4368, App. A, §§ IV.B.1, VII.C.3.
119 For example, evidence that NBCU has previously [REDACTED
].
120 See supra n.113 and accompanying text (discussing post-breach remedies).
121 See NBCU Petition at 23.
122 See id. at 22; see also Award at 9 (noting that none of NBCU’s counterparties in its licensing agreements “appear
in any way to be informed as to the scope of content PCI is seeking from NBCU in this arbitration”).
17

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

much of the information in an arbitration proceeding may be subject to a protective order, as was the case
in this proceeding.123 Thus, as a practical matter, it may be virtually impossible for NBCU to establish
that a third-party licensee has or would in fact assert a claim under a licensing agreement.
30.
Furthermore, we agree with NBCU that it would be inappropriate to require NBCU to
breach a contract not otherwise prohibited by Section IV.B.1 with a third-party licensee and then avail
itself of any post-breach remedies if the third-party licensee objects.124 The Benchmark Condition allows
NBCU to assert a contractual defense during an arbitration proceeding prior to licensing content to an
OVD, thus demonstrating that the contractual defense is intended to prevent a breach before it occurs.125
It would undermine this purpose, as well as the rights and interests of the third-party licensees, to require
NBCU to wait until a third-party licensee discovers that its rights have been violated and objects and then
apply any remedies after the fact. In this regard, a third-party licensee may not be satisfied with the post-
breach remedies and may sue NBCU for damages (and NBCU may in turn look to the OVD for
indemnification).126 Or, even if the licensee does not sue NBCU for the breach, the dispute may
adversely affect NBCU’s future business dealings with the licensee.127 Accordingly, we do not think that
the inclusion of any post-breach remedies in a final offer should be taken into account in determining
whether NBCU has met its burden of demonstrating that the provision of programming to a particular
OVD “would constitute a breach of a contract.”
b.

PCI’s Online Service

31.
As noted above, PCI’s planned online service consists of [REDACTED
].128 PCI states that its online service will be targeted to
[REDACTED
].129 PCI states that
[REDACTED
.130
.131


123 See Comcast/NBCU Order, 26 FCC Rcd at 4370, App. A, § VIII.4 (“Parties may request that access to
information of a commercially sensitive nature be restricted to the arbitrator and outside counsel and experts of the
opposing party pursuant to a Protective Order . . . .”).
124 See NBCU Petition at 22-23; see also NBCU Phase 1 Post-Hearing Brief at 26; supra n.113 and accompanying
text (discussing post-breach remedies).
125 See Comcast/NBCU Order, 26 FCC Rcd at 4368, App. A, § VII.C.3.
126 See NBCU Petition at 24; see also NBCU Phase 1 Post-Hearing Brief at 26.
127 See NBCU Petition at 24.
128 See PCI Opposition at 3; Peyer Phase 1 Declaration at ¶ 2, 16.
129 See [REDACTED
], NBCU Ex. 7, at PCI 000059-
000060 [REDACTED
]; see also Peyer Test., Hr’g Tr. at 400:7-10 [REDACTED
].
130 See PCI Opposition at 3, 38; [REDACTED
] at 1.
131 See [REDACTED
] at PCI 000037-000040; [REDACTED
] at 5-6.
18

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

.132


.133
.134
.135
.136
.137
].138
32.
In the online [REDACTED
.139
.140
.141
.142
.143
.144
.145


132 See [REDACTED
] at 5-6.
133 See id.
134 See [REDACTED
], NBCU Ex. 9, at PCI 000134 [REDACTED]; see also Peyer Phase 1
Declaration at ¶ 23.
135 See [REDACTED
] at 7.
136 See id. at 7-8.
137 See id. at 7-9.
138 See id. at 9
139 See id. at 2.
140 See id.
141 See id. at 3.
142 See id.
143 See id. at 9.
144 See id. at 2.
145 See id.
19

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

].146
33.
This proceeding presents difficult questions regarding whether PCI’s OVD service is
[REDACTED ] or [REDACTED ] questions that are further complicated by the fact that PCI [
REDACTED ]
its service. We acknowledge that [REDACTED
] business model is
unique and differs in a number of respects from [REDACTED
]video
distribution services. Nevertheless, as explained below, for purposes of evaluating NBCU’s contract
defense, we conclude that PCI’s online service is [REDACTED ] within the meaning of the terms of the
contracts for purposes of this proceeding, only to the extent that consumers are using [REDACTED
].
34.
We agree with NBCU that PCI’s business model [REDACTED
147


].148 Based on the record, we are not persuaded by PCI’s claims that [REDACTED
].149 PCI concedes that [REDACTED
.150
].151 In addition, as NBCU points out,
consumers can [REDACTED
].152 Thus, we find that PCI’s [REDACTED
].


146 See Smith Test., Hr’g Tr. 250:9-16; see also [REDACTED] at PCI 000134 (stating that [REDACTED
]). At the Phase 1 hearing,
Lawrence Smith, PCI’s Vice President of Content, suggested that [REDACTED
] Smith Test., Hr’g Tr. at 345:14-346:5.
147 NBCU Petition at 26.
148 [REDACTED
] at PCI 000032-37.
149 See PCI Opposition at 38; see also Peyer Phase 1 Declaration at ¶¶ 2, 16.
150 See Marenzi Test., Hr’g Tr. at 452:12-17 (agreeing that [REDACTED
]).
151 See supra ¶¶ 31-32. NBCU notes that consumers [REDACTED
]. See NBCU Petition at 27 (citing Peyer
Test., Hr’g Tr. at 377:21-378:9). PCI indicated that it would [REDACTED
]. See Smith Test., Hr’g Tr. at 335:8-14; Peyer Test., Hr’g Tr. at 384:14-20, 386:13-20, 388:2-8, 392:6-20;
Marenzi Test., Hr’g Tr. at 456:17-21. PCI acknowledged, however, that [REDACTED
]. See Peyer Test., Hr’g Tr. at 386:13-20, 388:2-8.
152 See NBCU Petition at 26; NBCU Reply at 15; NBCU Phase 1 Post-Hearing Brief at 10. NBCU notes that PCI’s
Phase 1 and Phase 2 Final Offers [REDACTED
].
See NBCU Petition at 26; see also PCI [REDACTED
], NBCU Ex. 4, at [REDACTED];
PCI’s Phase 2 Final Offer – [REDACTED
], NBCU Ex.
20

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

35.
PCI also argues that an [REDACTED
].153 PCI avers that [REDACTED
]154 Rather,
PCI states, [REDACTED
]155
We disagree. Under PCI’s business model, [REDACTED

.156
.157

.158
.159
.160
]161 Thus, while PCI’s
business model differs from traditional [REDACTED ] in that the [REDACTED
].162





65, at [REDACTED]. At hearing, Sharon Peyer, PCI’s Co-Founder and Vice President of Business Development,
explained that there [REDACTED
]. See Peyer Test., Hr’g Tr. at 395:5-17 (“When [consumers]
[REDACTED
]).
153 See PCI Opposition at 37; see also Marenzi Test., Hr’g Tr. at 442:16-443:3.
154 PCI Opposition at 37; see also Peyer Test., Hr’g Tr. at 417:6-14.
155 PCI Opposition at 39-40; see also Peyer Test., Hr’g Tr. at 377:3-20.
156 PCI asserts that no consumer [REDACTED
]. See PCI Opposition at 39-40; see also Peyer Phase 1 Declaration at ¶¶ 5, 23. To the extent that
consumers elect to [REDACTED
], NBCU concedes, and we agree, that such
transactions are not [REDACTED
]. See NBCU Reply at 18. It is clear from the record,
however, that PCI intends to [REDACTED
]. See [REDACTED
] at PCI 000034; [REDACTED
], NBCU Ex. 10, at PCI 000128
[REDACTED
]; see also Madoff Phase 1 Expert Report at ¶ 34 (noting that PCI’s website,
http://www.projectconcord.com, states that PCI provides premium content “‘without having to open your wallet’”).
157 See generally [REDACTED
] at PCI 0000109-130.
158 See supra ¶¶ 31-32.
159 See supra ¶ 31.
160 See supra ¶ 32.
161 See id.
162 PCI argues that [REDACTED
]. See PCI
Opposition at 39; see also Smith Test., Hr’g Tr. at 314:7-9 [REDACTED
]. We find, however, that it is relevant
where, as here, the primary method by which the OVD service is monetized is through [REDACTED
]. See
NBCU Reply at 23 (NBCU licensees impose “[REDACTED
] precisely because they care whether a
21

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

36.
Additionally, PCI maintains that the Benchmark Agreement with [REDACTED]
confirms that its Economic Model163 is transactional, distributing programming on a PPV/VOD or EST
basis, rather than [REDACTED].164 PCI further asserts that “the [REDACTED
].”165 While we acknowledge that the Benchmark Agreement grants
PCI a non-exclusive license to distribute programming on a PPV/VOD or EST basis, the Agreement does
not clearly prohibit all [REDACTED] exhibition of [REDACTED] programming.166 Rather, the
provisions of the Benchmark Agreement cited by PCI simply indicate that the EST and VOD titles as
delivered to PCI by [REDACTED
]167 These provisions do not explicitly address
[REDACTED
].168 Moreover, we note that
[REDACTED] was not a party to or a participant in the arbitration proceeding, and the record does not
reflect [REDACTED] interpretation of these provisions or its views on PCI’s service. In any event, as
NBCU points out, other NBCU licensees may have a different view of PCI’s business model than
[REDACTED].169
37.
We recognize that PCI’s service differs in a number of other respects from a traditional
[REDACTED ]. In this regard, PCI asserts that [REDACTED
;170
;171

;172
].173 We do not believe, however, that
these differences alter the fundamental [REDACTED] nature of PCI’s service. In both a traditional





consumer [REDACTED
]”) (emphasis in original).
163 “Economic Model” is defined in the Comcast/NBCU Order as “the primary method by which the Video
Programming is monetized, e.g., ad-supported, subscription without ads, subscription with ads, electronic sell
through (‘EST’) or PPV/TVOD reflected in the terms of the agreement(s) for the Comparable Programming.”
Comcast/NBCU Order, 26 FCC Rcd at 4357, App. A, § I.
164 See PCI Opposition at 33 (citing DeVitre Phase 1 Expert Report at ¶ 14; DeVitre Test., Hr’g Tr. at 481:14-
482:18). PCI states that the Benchmark Agreement granted to PCI is a non-exclusive license to distribute current
and library motion pictures on an Internet TVOD basis and current season and library season television programs on
an EST basis. See PCI Opposition at 33 (citing Letter from [REDACTED
] to Project Concord,
Inc., [REDACTED ], PCI Ex. 110, at PCI 000084 [REDACTED
]).
165 See PCI Opposition at 34-35 (citing Benchmark Agreement at [REDACTED]) (emphasis in original).
166 See NBCU Reply at 29.
167 Benchmark Agreement at [REDACTED
].
168 See id. By contrast, we note that NBCU’s agreements with [REDACTED
]. See infra ¶ 44.
169 See NBCU Reply at 28.
170 PCI Opposition at 38; see also Marenzi Phase 1 Expert Report at ¶ 13.
171 See PCI Opposition at 39; see also Peyer Phase 1 Declaration at ¶¶ 17, 20.
172 See PCI Opposition at 39; see also Peyer Phase 1 Declaration at ¶¶ 21-22.
173 See PCI Opposition at 41; see also Peyer Phase 1 Declaration at ¶ 4.
22

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

[REDACTED] model and PCI’s model, the [REDACTED
]
for viewing the licensed programming content.174
38.
PCI maintains that a consumer is [REDACTED
].175 While it is true that the price
listed in [REDACTED
]. From a consumer’s
perspective, there is a substantial difference between [REDACTED
].176 Further, a consumer is
[REDACTED
]. Thus, we do not believe that a consumer will view
[REDACTED
].177 Indeed, the main selling point of PCI’s service is that
the consumer can view movies and television programs “without having to open [his] wallet.”178
39.
We are also unpersuaded by PCI’s argument that [REDACTED
].179 According to PCI, the
[REDACTED
].180 Unlike the [REDACTED
], however,
[REDACTED ] are purchased by the consumer using a credit card or real cash.181 Further, while
[REDACTED


174 See NBCU Reply at 16; see also [REDACTED
] at PCI000047-50.
175 See PCI Opposition at 38; see also Smith Test., Hr’g Tr. at 336:8-11.
176 See supra ¶ 32.
177 Nor do we think it likely that a consumer will [REDACTED
]. PCI’s
[REDACTED
] at PCI 0000132. Additionally, as noted above, consumers are [REDACTED
]. See supra ¶ 31. Finally, at hearing, Sharon Peyer, PCI
Co-Founder and Vice President of Business Development, was [REDACTED
]. See Peyer Test., Hr’g Tr. at 391:7-16.
178 See Madoff Phase 1 Expert Report at ¶ 34 (noting that PCI’s website, http://www.projectconcord.com, states that
PCI provides premium content “‘without having to open your wallet’”).
179 See PCI Opposition at 40; see also Smith Test., Hr’g Tr. at 250:1-22, 280:4-289:7; Peyer Test., Hr’g Tr. at 361:1-
12, 389:9-19.
180 PCI Opposition at 40-41; see also Smith Phase 1 Declaration at 16-19, 20-22, 25-27.
181 Microsoft instituted the points system as a way to get around the five dollar minimum for credit card purchases in
the U.S. See NBCU Opening Statement at 23 (citing Xbox Discussion of Microsoft Points, available at
http://www.xbox.com/en-US/live/microsoftpoints (last visited Apr. 14, 2012)). PCI correctly notes that
[REDACTED
]. See PCI Opposition at 41; see also
Smith Test., Hr’g Tr. at 287:4-289:2. As noted above, however, [REDACTED ] are purchased using a credit card
or real cash, not [REDACTED
].
23

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

],182 these types of
[REDACTED ] are not based on the [REDACTED ] and are a limited exception to the rule requiring
users to pay a distinct fee for content.183
40.
Finally, NBCU argues that PCI’s pending patent application further confirms that its
[REDACTED
], asserting that relevant provisions in the patent application make clear
that “‘electronic credit earned from consuming ads can be used as advertiser-supported payment for any
desired video or any other information content currently being consumed or to be consumed at some later
time, in the information content consuming mode of the consumer’s computer.’”184 NBCU also notes that
the patent application distinguishes between “advertiser-supported” payment and “consumer-supported”
payment.185 In response, PCI claims that NBCU mischaracterizes the patent application, asserting that the
patent application sought to protect the widest possible application of PCI’s unique technological
capabilities and does not provide evidence of how PCI has actually deployed its capabilities in connection
with the design and launch of its [REDACTED

].186 While not dispositive, we think
that the patent application does provide another indication that PCI’s [REDACTED

]
within the meaning of the terms of the contracts for purposes of this proceeding, only to the extent that
consumers are using [REDACTED
].187


182 See PCI Opposition at 41 n.155; NBCU Petition at 17-18; see also Smith Phase 1 Declaration at 16-19, 20-22,
25-27.
183 See Madoff Phase 2 Report at ¶ 18 (“[L]icensees . . . are willing to allow [REDACTED
] on
competing services . . . but only as a limited exception and never as the rule. These [REDACTED
]
serve a legitimate purpose by enticing consumers to try a service for the first time (or return to that service after an
absence), with the goal of converting those consumers to [REDACTED
].”).
184 NBCU Petition at 27-28 (quoting U.S. Patent Application Publication No. US 2011/0153396, Method and
System for Processing On-Line Transactions Involving a Content Owner, an Advertiser, and a Targeted Customer,
filed December 22, 2009, NBCU Ex. 63, at 9 (“PCI Patent Application”)) (emphasis added).
185 PCI Patent Application at 6 (“Such payment for desired information resulting from the consumption of ads is
herein referred to as ‘advertiser-supported’ payment, and any payment for desired information content that is not
advertiser-supported is herein referred to as ‘consumer-supported’ payment.”).
186 See PCI Opposition at 41-42. At hearing, Sharon Peyer, PCI’s Co-Founder and Vice President of Business
Development, indicated that the “advertiser-supported” language in the patent application came from the person who
prepared the patent application, who was not familiar with “industry lingo.” See Peyer Test., Hr’g Tr. at 417:15-
418:4. We note, however, that the inventors of the patent, including Sharon Peyer, are responsible for the
representations made in the patent application. See 37 C.F.R. § 1.63.
187 See e.g., PCI Patent Application at Fig. 1 (Fig. 1, which illustrates “a triangular economic transaction enabling
negotiated transactions involving an information content owner, an advertiser, and a consumer, according to the
present invention” clearly shows the flow of payment going from the advertiser to the information content owner.);
at 4 (“For example, the information content owner can offer information content of value to the consumer … in
return for proper payment of the offered content originating from the advertiser …. The advertiser may be willing to
provide such payment to the information content owner in response to specific data received from the consumer …,
indicating amounts of time and attention expended by the consumer while consuming … ads provided by the
advertiser.”); and at 11 (“[I]n a triangular economic transaction, an information content owner may offer information
content of value to a consumer in return for the proper payment of the offered content originating from the
advertiser.”).
24

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

41.
Accordingly, we conclude that, only to the extent that consumers are using
[REDACTED
], PCI’s service is
[REDACTED] within the meaning of the terms of the contracts for purposes of this proceeding.
c.

NBCU Licensing Agreements

42.
As discussed below, we conclude that NBCU has established by a preponderance of the
evidence that licensing certain films and TV programs to PCI “would constitute a breach” of provisions of
various licensing agreements provided by NBCU that are “consistent with reasonable, common industry
practice.”188 NBCU explains that its distributor and network licensees pay significant fees for rights to
license its film and television programming and recoup their investments by charging subscription fees to
consumers or selling time to advertisers.189 In order to protect the value of their investments, the licensees
restrict NBCU’s concurrent exploitation of the programming to certain types of business models,
[REDACTED
].190 Additionally, the licensees require that these business models meet one or
both of the following requirements during their license periods: (1) [REDACTED
], and (2) [REDACTED
].191 NBCU also has provided evidence that these requirements
are reasonable and necessary to help to ensure that the licensee’s ability to monetize the programming,
either through a [REDACTED
], is not undermined by having the same programming
available elsewhere [REDACTED] or by having to compete with another service for the [REDACTED
]
.192 Below, we analyze NBCU’s licensing agreements to determine whether NBCU’s licensing of certain
films and TV programs to PCI “would constitute a breach” of these agreements containing restrictions
consistent with the Benchmark Condition. We note that the record includes numerous representative film
and television license agreements provided by NBCU.193 Rather than analyze each license agreement, we
review a selection of film and television license agreements that include variations of the relevant
language.
(i)

Film Agreements

43.
According to NBCU, its licensing agreements with [REDACTED] form the primary
structure by which the majority of NBCU’s films are windowed and restricted during their lifecycle.194
[REDACTED] pays NBCU substantial sums for the right to exhibit films, which sums are used to
monetize NBCU’s films as they enter the pre-production and production stages.195 NBCU’s


188 See supra nn.102, 104 (noting that there was no dispute between the parties as to whether the representative
contracts provided by NBCU, including the exclusivity and windowing provisions contained therein, are “consistent
with reasonable, common industry practice,” and neither side sought review of this issue; 17 of the 21 representative
licensing agreements were executed prior to the announcement of the Comcast-NBCU transaction in December
2009).
189 See NBCU Petition at 29; see also Casino Phase 1 Declaration at ¶ 10; Lamprecht Phase 1 Declaration at ¶ 11;
Roberts Phase 1 Declaration at ¶ 13.
190 See NBCU Petition at 29; see also Madoff Phase 1 Expert Report at ¶¶ 15-17, 31; Wunderlich Phase 1 Expert
Report at ¶¶ 25-26; Roberts Phase 1 Declaration at ¶¶ 14-19.
191 See NBCU Petition at 29; see also Madoff Phase 1 Expert Report at ¶¶ 16, 21-22, 31.
192 See NBCU Petition at 29-30; see also Madoff Phase 1 Expert Report at ¶¶ 20-24; Wunderlich Phase 1 Expert
Report at ¶¶ 24-29.
193 See NBCU Exs. 35-39 and 41-60.
194 See Casino Phase 1 Declaration at ¶ 9.
195 See id. at ¶ 10.
25

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

[REDACTED
.196
.197
.198
].199 This
restriction ensures that films are restricted to [REDACTED
.200
], it is common for the network licensees to impose
their own restrictions on other concurrent exhibition.201 Typically, the [REDACTED

] that prevent NBCU from offering the same films to any other [REDACTED
]
service to ensure that they do not have to compete in [REDACTED
] against the same
films.202 Below, we examine NBCU's film licensing agreements with [REDACTED].
(a)
[REDACTED] Agreements
44.
NBCU has licensing agreements with [REDACTED],203 which impose [REDACTED]
on all forms of exhibition of covered films during [REDACTED] license period,204 with specific
[REDACTED
,205
].206 Under the [REDACTED] agreements, the exhibition


196 See id. at ¶ 10.
197 See id. at ¶ 13.
198 See id.
199 See id. at ¶ 14.
200 See id.
201 See id. at ¶ 15.
202 See id. at ¶ 17.
203 See NBCU Petition at 30; see also [REDACTED
] Agreement, NBCU Ex. 35B, at
NBCU_PCI_00000003-138 (“[REDACTED] Agreement”); [REDACTED
] Agreement, NBCU Ex. 35E, at
NBCU_PCI_ 00000167-271 (“[REDACTED] Agreement”). Both [REDACTED] agreements have been amended.
See [REDACTED]Agreement Amendments at NBCU_PCI_00000363-440; [REDACTED
]
Agreement & Amendments, NBCU. Ex. 35H, at NBCU_PCI_00000287-362 (“[REDACTED]Agreement
Amendments”).
204 See NBCU Petition at App. B; see also [REDACTED]Agreement at NBCU_PCI_00000085, § 3(d)(i);
[REDACTED] Agreement at NBCU_PCI_00000218, § 3(d)(i).
205 See Casino Phase 1 Declaration at ¶¶ 11-15 (describing the restrictions imposed during each of [REDACTED
]).
206 See NBCU Petition at App. B; see also [REDACTED] Agreement at NBCU_PCI_00000086, § 3(d)(i)(B);
[REDACTED] Agreement at NBCU_PCI_00000218, § 3(d)(i)(A). The [REDACTED] agreements also include
[REDACTED] on film content [REDACTED
] See [REDACTED] Agreement at
NBCU_PCI_00000086, § 3(d)(i)(B); [REDACTED] Agreement at NBCU_PCI_00000218, § 3(d)(i)(A).
[REDACTED
26

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

of NBCU-licensed films on a [REDACTED
207

].208
The definition of [REDACTED
].209





]. See [REDACTED] Agreement at NBCU_PCI_00000019-20; [REDACTED]
Agreement at NBCU_PCI_00000175-77. The Final Agreement between PCI and NBCU authorizes PCI
[REDACTED
]. See Final Agreement at [REDACTED
].
Accordingly, the [REDACTED]in the [REDACTED] agreements for film content distributed by means of
[REDACTED ] are not relevant for purposes of determining whether the provision of film content to PCI would
constitute a breach of NBCU’s licensing agreements with [REDACTED].
207 See [REDACTED] Agreement at NBCU_PCI_00000012, § 1.13; [REDACTED] Agreement at
NBCU_PCI_00000174, § 1.8.
208 See [REDACTED] Agreement Amendment at NBCU_PCI_00000392-395, § 1.101; [REDACTED] Agreement
at NBCU_PCI_00000323-326, §1.65.
209 See [REDACTED] Agreement Amendment at NBCU_PCI_00000392-395, § 1.101; [REDACTED] Agreement
at NBCU_PCI_00000323-326, § 1.65.
27

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

45.
First, regarding the [REDACTED
]
we find that consumers using [REDACTED
]. PCI argues that [REDACTED
].210
This argument, however, misses the point. Because the [REDACTED
]. In this regard, we find persuasive NBCU’s argument that such [REDACTED
].211 In support of this argument, NBCU provided copies of
several [REDACTED
].212 NBCU sent one of these [REDACTED
.213
.214
].215 NBCU further stated
that “making Universal movies available to consumers for [REDACTED] is not permitted by the license
agreement (which requires, among other things, that [REDACTED

] causes us to be in violation of licensing arrangements we have with third parties.”216
We think that the similarities between [REDACTED] and PCI’s service are clear. In both cases,
[REDACTED
] and similarly [REDACTED

]. Thus, in both cases, [REDACTED
].
46.
We also agree with NBCU that PCI’s service does not satisfy the requirement in the
[REDACTED
].217 As discussed in detail above, we believe that the cost to the consumer of renting or
purchasing content [REDACTED


210 See PCI Opposition at 44; see also Peyer Test., Hr’g Tr. at 401:21-402:12.
211 See Madoff Phase 2 Report at ¶ 12 [REDACTED
]; see also Wunderlich Phase 2 Report at ¶¶ 41-59 (explaining that the [REDACTED
] are contrary to the terms in many NBCU licensing agreements).
212 See Wunderlich Phase 2 Report, Exs. 1-5 [REDACTED
].
213 See id., Ex. 4, [REDACTED
].
214 See id.
215 Id.
216 Id.
217 See NBCU Petition at 31; see also Madoff Phase 2 Expert Report at ¶ 12.
28

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

].218 Thus, the cost to consumers of renting or purchasing content [REDACTED
].
47.
Moreover, we conclude that PCI’s exhibition of films is [REDACTED
].219 We explain above why we believe that PCI’s
service is [REDACTED],220 and we find that PCI’s service falls within the broad definition in the
[REDACTED] agreements. PCI states that the definition of [REDACTED
].221 To the extent
that [REDACTED
], we find that the viewing of content is [REDACTED
]
. In addition, as discussed above, we believe that under PCI’s business model, the
[REDACTED
].222
48.
PCI claims that it is highly unlikely that [REDACTED] and other licensees will view
PCI’s service as violating their contracts because “the industry views [REDACTED] as the gold standard
— if [REDACTED] does a deal, then the other studios can be confident in following suit.”223 We are not
convinced that [REDACTED] and other NBCU licensees will view PCI’s service as not violating their
contracts simply because [REDACTED] has entered into an agreement with PCI. [REDACTED
] is not in the record so we are unable to assess whether PCI’s service would violate that
agreement. Moreover, as explained above, the underlying reason for the restrictions on [REDACTED
] exhibition of programming in [REDACTED] licensing agreements is to ensure that
[REDACTED] ability to monetize the programming is not undermined by having the same programming
available elsewhere for [REDACTED].224 We are persuaded that PCI’s service implicates this concern.
If consumers can [REDACTED
], these consumers may be unwilling to pay [REDACTED]
subscription fees to watch the same films during [REDACTED
].
49.
PCI asserts that [REDACTED
] that is substantially similar to NBCU’s
agreement with [REDACTED], and that NBCU’s agreement with [REDACTED] contains a


218 See supra ¶ 38.
219 See supra ¶ 44. Gary Marenzi, one of PCI’s expert witnesses, testified that “[REDACTED ] is a service
that has [REDACTED] tied to the programs for the purpose of supporting those specific programs that are being
watched immediately . . . . The [REDACTED] is buying the [REDACTED] for that specific show to reach that
target demographic on that particular network.” Marenzi Test., Hr’g Tr. at 442:14-443:3. [REDACTED
]. See supra ¶ 44.
220 See supra ¶¶ 34-40.
221 See PCI Opposition at 45-46 (citing DeVitre Phase 1 Report at ¶ 32).
222 See supra ¶ 38.
223 PCI Opposition at 47 (citing Marenzi Test., Hr’g Tr. at 433:2-12).
224 See supra ¶ 42.
29

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

[REDACTED ] provision, which allows NBCU to take advantage of any exceptions to
[REDACTED
].225 As NBCU points out, however, the [REDACTED
].226 During the arbitration proceeding,
NBCU argued that it should be permitted to seek advance approval of PCI’s service from [REDACTED]
under the [REDACTED
]from its other licensees), but PCI objected.227 We recognize that
PCI may have legitimate reasons to refrain from disclosing the details of its as-yet [REDACTED]
service. Nevertheless, given PCI’s apparent unwillingness to allow NBCU to invoke the [REDACTED ]
prior to providing its licensed programming to PCI, we cannot conclude that this provision will serve to
preclude a breach of NBCU’s licensing agreement with [REDACTED].
50.
Accordingly, after carefully considering the record before us, we conclude that NBCU
has demonstrated by a preponderance of the evidence that licensing certain films to PCI would constitute
a breach of NBCU’s licensing agreements with [REDACTED] and that the pertinent restrictions in those
agreements, which predate the Comcast-NBCU transaction, are “consistent with reasonable, common
industry practice[s]” as required by the Benchmark Condition.228
(b)
[REDACTED] Agreements
51.
NBCU states that its licensing agreements with [REDACTED] impose [REDACTED]
on NBCU’s concurrent exploitation of licensed films, with [REDACTED]for exhibition on a
[REDACTED].229 Under the [REDACTED] agreements, [REDACTED ]:


225 See PCI Opposition at 47; see also DeVitre Phase 1 Expert Report at ¶ 36.
226 See NBCU Petition at 34; see also [REDACTED
] Agreement, NBCU Ex. 35D, at
NBCU_PCI_00000153-54, § 2(a)(ii); [REDACTED
] Agreement and Amendments,
NBCU Ex. 35G, at NBCU_PCI_00000278, § 3(a)(ii).
227 See NBCU Phase 2 Opening Brief at 20-22; see also PCI’s Second Cost-Shifting Request at 14 (arguing that it
was unreasonable conduct warranting cost-shifting for NBCU to argue that it should be allowed to seek approval of
PCI’s service from [REDACTED ]).
228 See supra nn.102, 104.
229 See NBCU Petition at 34, App. B; see also [REDACTED
] Agreement and Amendments, NBCU Ex.
36B, at NBCU_PCI_00000572-73, § 2(b) [REDACTED] and § 2(b)(i) [REDACTED] (“[REDACTED]
Agreement”); [REDACTED ] Agreement and Amendments, NBCU Ex. 36A, at NBCU_PCI_00000477-78, § 2(b)
[REDACTED ] (“[REDACTED] Agreement”); Casino Phase 1 Declaration at Ex. B (describing the
restrictions imposed during each of [REDACTED
]). The [REDACTED]
agreements also include [REDACTED] on films exhibited [REDACTED
]. See [REDACTED] Agreement at NBCU_PCI_00000572-
73, § 2(b); [REDACTED] Agreement at NBCU_PCI_00000477-78, § 2(b). The [REDACTED] agreements define
[REDACTED
]. See [REDACTED] Agreement at NBCU_PCI_00000561, § 1(u) [REDACTED ]; at
NBCU_PCI_00000563, § 1(x) [REDACTED ]; and NBCU_PCI_00000564, § 1(z) [REDACTED ];
[REDACTED] Agreement at NBCU_PCI_00000467-68, § 1(m) [REDACTED]; NBCU_PCI_00000469-70, § 1(q)
[REDACTED ]; and NBCU_PCI_00000470-71, § 1(s) [REDACTED ]. The Final Agreement between PCI
and NBCU does not contemplate PCI’s offering of films on [REDACTED
]. Accordingly, the [REDACTED] in the [REDACTED] agreements for films exhibited on a
30

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

[REDACTED
].230
Thus, under the [REDACTED] agreements, NBCU is prohibited from concurrently exploiting films
licensed to [REDACTED
].
52.
NBCU argues that licensing the [REDACTED] film content to PCI would constitute a
breach of the [REDACTED] licensing agreements because there will be [REDACTED
].231 Steven Madoff, NBCU’s expert, explained that “the customary and
reasonable understanding of the term [REDACTED] in the entertainment industry as it relates to
[REDACTED

].”232
Mr. Madoff further explained that the language in the [REDACTED] agreements is intended to have the
same effect as the [REDACTED
] — with the same emphasis on the [REDACTED
]— and will be viewed by [REDACTED] as having the same industry-standard meaning
in any dispute over PCI’s service.233 We find Mr. Madoff’s explanation persuasive. The [REDACTED
] is intended to protect the economic model underlying the
[REDACTED
].234 In this regard, renting a film on a VOD basis typically costs a consumer
around $4-5, whereas a pay television service typically offers the consumer a full month of programming
for $10-20.235 If films licensed to [REDACTED] were made available on an [REDACTED
] basis, where consumers do not have to [REDACTED
] to view
the films, consumers may be unwilling to pay [REDACTED] monthly subscription fees.236 Thus, we
think it is clear that the requirement in the [REDACTED] agreements that [REDACTED
] is intended to ensure that the consumer, rather than an [REDACTED],
actually pays for access to the film content. While PCI argues that [REDACTED ] complies with the
[REDACTED] agreements because it imposes a [REDACTED
],237 this argument is premised on its view that
its service is not [REDACTED]. As discussed above, however, only to the extent that a consumer uses
[REDACTED
], we conclude that PCI’s service is
[REDACTED] within the meaning of the terms of the contracts for purposes of this proceeding and
[REDACTED
] for access to content.238 Accordingly, we conclude that NBCU has





[REDACTED ] are not relevant for purposes of determining whether the provision of film content to PCI would
constitute a breach of NBCU’s licensing agreements with [REDACTED].
230 See [REDACTED ] Agreement at NBCU_PCI_00000566, § 1(ee); [REDACTED ] Agreement at
NBCU_PCI_00000472-473, § 1(x); see also NBCU Petition at 34-35.
231 See NBCU Petition at 34-35; NBCU Reply at 26; see also Madoff Phase 2 Expert Report at ¶¶ 13-14.
232 Madoff Phase 2 Expert Report at ¶ 14.
233 See id.
234 See Madoff Phase 1 Expert Report at ¶¶ 20-22.
235 See id. at ¶ 16.
236 See id. at ¶ 22.
237 See PCI Opposition at 47; see also PCI Phase 2 Closing Brief at 16.
238 See supra ¶¶ 33-41.
31

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

established by a preponderance of the evidence that licensing films covered by the [REDACTED]
agreements to PCI would constitute a breach of the [REDACTED] agreements and that the pertinent
restrictions in those agreements, which predate the Comcast-NBCU transaction, are “consistent with
reasonable, common industry practice[s]” as required by the Benchmark Condition.239
(ii)

Network Television Agreements

53.
NBCU states that its network television licensing agreements, [REDACTED
],240 contain similar [REDACTED
] provisions that prohibit
[REDACTED
] of certain television shows.241 NBCU explains that, when a
studio first licenses an original show to a television network, it is customary for the [REDACTED] to
obtain [REDACTED] over that show, which allows the network to recoup its investment in the
programming [REDACTED]
.242 It is also common for studios and networks to
“freeze” all other forms of exploitation and then negotiate over unlocking discrete exploitation rights.243
For example, the network may be permitted to exploit the show [REDACTED
].244 In return, the studio may be permitted to
exploit the show [REDACTED
].245
Such [REDACTED
]; otherwise, the
studios would be competing against the network for [REDACTED].246 Similarly, when a studio licenses
a show for syndication to a basic cable network or broadcast station, the licensing agreements allow for
some limited types of concurrent exploitation of the show but, to ensure that the network is not competing
against other services for [REDACTED], require that the consumer [REDACTED
].247 Below, we
analyze representative examples of NBCU network licensing agreements.
(a)
[REDACTED
]
54.
The licensing agreement between NBCU and [REDACTED
]
, for the rights to certain episodes of the television series [REDACTED ] includes a
[REDACTED] provision which provides, in relevant part, that:
[REDACTED


239 See supra nn.102, 104.
240 [REDACTED
]. See Roberts Phase 1 Declaration at ¶¶ 24-29; Wunderlich Phase 1 Expert Report at ¶¶ 45-
46.
241 See NBCU Petition at 37; see also Roberts Phase 1 Declaration at ¶¶ 18-19, Ex. A; Casino Phase 1 Declaration at
¶¶ 23-27; Wunderlich Phase 1 Expert Report at ¶¶ 24-27.
242 See Casino Phase 1 Declaration at ¶ 22; Roberts Phase 1 Declaration at ¶¶ 12-14.
243 See Casino Phase 1 Declaration at ¶ 22; Roberts Phase 1 Declaration at ¶ 16.
244 See Casino Phase 1 Declaration at ¶ 22; Roberts Phase 1 Declaration at ¶¶ 17-18.
245 See Casino Phase 1 Declaration at ¶ 22; Roberts Phase 1 Declaration at ¶ 18.
246 See Casino Phase 1 Declaration at ¶ 22; Roberts Phase 1 Declaration at ¶ 18.
247 See Casino Phase 1 Declaration at ¶¶ 23-25.
32

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

].248
[REDACTED
]249 Accordingly, under this agreement, NBCU is prohibited from licensing certain
covered episodes of the television series [REDACTED ] during the affected [REDACTED
] for exhibition on a [REDACTED] basis where the consumer is [REDACTED
]
view the episodes.250
55.
We find that, to the extent that consumers are using [REDACTED
]
is not [REDACTED
] to access its program content. Like the
[REDACTED
] agreements and the [REDACTED
] agreements, we think that the [REDACTED ] is meant to ensure that the consumer
[REDACTED
] for access to the content. The record establishes that restrictions such as this
[REDACTED ] are commonly included in television licensing contracts because when a licensing
network pays for the right to exhibit the program on its [REDACTED] channel, it does not want to
compete with other services for [REDACTED] against the same programming.251 As discussed above,
only to the extent that a consumer uses [REDACTED
], we conclude that PCI’s service is [REDACTED] within the meaning of the
terms of the contracts for purposes of this proceeding and does not [REDACTED
] access to content.252 Therefore, we find that NBCU has established by a preponderance
of the evidence that licensing the covered episodes of [REDACTED ] to PCI would constitute a breach
of NBCU’s contract with [REDACTED] and that the pertinent restriction in that contract is “consistent
with reasonable, common industry practice” as required by the Benchmark Condition.253 Moreover, to
the extent that NBCU has additional network television licensing agreements that contain restrictions
similar to those discussed above, we find that the provision of such programming content to PCI would
constitute a breach of those contracts as well.


248 See [REDACTED
] NBCU Ex. 53A, at NBCU_PCI_00004659, § 11(a).
249 Id. at NBCU_PCI_00004657, at § 7(c).
250 Other representative network agreements submitted by NBCU which prohibit NBCU from licensing certain
television shows on a [REDACTED ] basis include the agreements governing the television series [REDACTED
] See [REDACTED
] NBCU Ex. 54A, at NBCU_PCI_00004690;
[REDACTED
] NBCU Ex. 55A, at NBCU_PCI_00004704-5, § 15.
251 See Casino Phase 1 Declaration at ¶¶ 23-25; see also Wunderlich Phase 1 Expert Report at ¶¶ 27-29; Madoff
Phase 1 Expert Report at ¶ 33.
252 See supra ¶¶ 33-41, 55.
253 See supra nn.102, 104.
33

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

(b)
[REDACTED]
56.
NBCU’s licensing agreement with [REDACTED
], for the rights to episodes of the television series [REDACTED] includes
a [REDACTED] provision, which provides, in relevant part, that:
[REDACTED
].254
The [REDACTED] provision further provides that:
[REDACTED
].255
This licensing agreement thus prohibits NBCU from licensing episodes of [REDACTED] for exhibition
on an [REDACTED
]basis, unless such exhibitions are [REDACTED] to the consumer and are
not [REDACTED].256
57.
As detailed above, only to the extent that consumers use [REDACTED
]
to access content, we believe that PCI’s service is [REDACTED] within the meaning
of the terms of the contracts for purposes of this proceeding and does not [REDACTED
].257 We accordingly find that NBCU has established by a preponderance of the evidence
that licensing the covered episodes of [REDACTED] to PCI would constitute a breach of NBCU’s
contract with [REDACTED ] and that the pertinent restriction in that contract is “consistent with


254 See [REDACTED
] NBCU Ex. 50A, at NBCU_PCI_00004576-77, and [REDACTED
]
NBCU Ex. 50B, at NBCU_PCI_00004592-93.
255 See id. at NBCU_PCI_00004592-93.
256 Other representative network agreements submitted by NBCU which provide that [REDACTED
] the consumer include the agreements governing the
television series [REDACTED
] See [REDACTED
] NBCU Ex. 52B, at NBCU_PCI_00004645-46, § 11; [REDACTED
] NBCU Ex. 56A, at NBCU_PCI_00004724, § 12; [REDACTED
] NBCU Ex. 45B, at NBCU_PCI_00004302, § C.2.
Similarly, representative [REDACTED] agreements submitted by NBCU permit [REDACTED
], provided that the episodes are not [REDACTED
]. See [REDACTED
] NBCU Ex. 48C, at NBCU_PCI_00004542, §2(b); [REDACTED
] NBCU Ex. 48E, at
NCBU_PCI_00004562, § 2(b); [REDACTED
] NBCU Ex. 48D, at NCBU_PCI_00004552, § 2(b).
257 See supra ¶¶ 33-41.
34

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

reasonable, common industry practice” as required by the Benchmark Condition.258 Moreover, to the
extent that NBCU has additional network television licensing agreements that contain restrictions similar
to those discussed above, we find that the provision of such programming content to PCI would constitute
a breach of those contracts as well.
(iii)

MVPD Agreements

58.
NBCU explains that it licenses a number of national cable networks, including USA,
Syfy, Bravo, Oxygen, E!, Style, and G4, to MVPDs for distribution.259 When an MVPD licenses a cable
network, the MVPD typically agrees to pay license fees for carriage on a per subscriber basis, resulting in
the payment to NBCU of substantial license fees which the MVPDs pass on to their subscribers in the
form of retail charges.260 In order to preserve the value of the programming on these networks which
their subscribers are paying to receive in real time (i.e., during its initial airing), the MVPDs typically
negotiate for some form of [REDACTED ] in their carriage agreements with the networks.261 These
[REDACTED] prohibit the networks, for some period of time, from making the same network
programming available through alternative distribution methods, such as online video distribution
services.262 Thus, for [REDACTED
], a network’s programming may not be
licensed [REDACTED
].263 NBCU’s licensing
agreement with [REDACTED] provides a representative example of NBCU’s MVPD licensing
agreements.
(a)
[REDACTED]
59.
NBCU’s licensing agreement with [REDACTED] includes a [REDACTED] provision
which applies to NBCU’s USA, Syfy, Bravo, Oxygen, mun2, Sleuth, and Universal HD networks.264
This provision states, in relevant part, that:
[REDACTED
].265


258 See supra nn.102, 104.
259 See Lamprecht Phase 1 Declaration at ¶ 9.
260 See id. at ¶¶ 11-12.
261 See id. at ¶ 12.
262 See id. at ¶ 13.
263 See id. at ¶¶ 17-19.
264 See [REDACTED
] NBCU Ex. 39Z, at
NBCU_PCI_00001459, § 2(c).
265 Id.
35

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

[REDACTED
]266 Thus, under this agreement, NBCU is prohibited from
licensing programming on the USA, Syfy, Bravo, Oxygen, mun2, Sleuth, and Universal HD networks for
online distribution, except for [REDACTED
].
60.
We find that consumers using [REDACTED
] are not being
[REDACTED
] within the meaning of the [REDACTED] agreement. As we explain above,
consumers using [REDACTED

] for access to programming content [REDACTED ] and therefore [REDACTED

].267 Moreover, as NBCU explained, the purpose of [REDACTED] provisions in MVPD agreements is
to preserve the value of the programming which MVPD subscribers are paying to receive in real time.268
In other words, if MVPD subscribers could view the same cable network programming in real time
[REDACTED
], the value of the programming to the subscribers and the MVPD would
drop dramatically (which may create a disincentive for the subscriber to pay a monthly subscription fee
for a programming package that includes such programming or for an MVPD to pay the higher price it
pays for real-time programming). Thus, we believe that NBCU has provided evidence that the intent of
the [REDACTED
] is reasonable and necessary to ensure that consumers are paying
[REDACTED ] to view the covered cable network programming in real time so that MVPDs and
ultimately programming networks can recover their costs, thereby creating an incentive for future
programming development. Accordingly, we conclude that NBCU has established by a preponderance of
the evidence that licensing programming on the USA, Syfy, Bravo, Oxygen, mun2, Sleuth, and Universal
HD networks to PCI for exhibition during the [REDACTED
]would constitute a breach of NBCU’s
agreement with [REDACTED], only to the extent that consumers use [REDACTED
] to access content, and that the pertinent restriction in that contract is “consistent with
reasonable, common industry practice” as required by the Benchmark Condition.269 Moreover, to the
extent that NBCU has additional licensing agreements with MVPDs that contain restrictions similar to
those discussed above, they likely would also be “consistent with reasonable, common industry practice”
and we find that providing such programming content to PCI would constitute a breach of those contracts
as well.
(iv)

Effect of Ruling on Final Agreement

61.
For the reasons set forth above, we conclude that, only to the extent that consumers use
[REDACTED
], NBCU has
established by a preponderance of the evidence that licensing certain film and television content to PCI
would constitute a breach of numerous NBCU licensing agreements and that the pertinent restrictions in
those agreements are “consistent with reasonable, common industry practice[s]” that predate the
Comcast-NBCU transaction as required by the Benchmark Condition. To the extent that NBCU has
additional contracts that contain restrictions similar to those discussed above, i.e., restrictions prohibiting
NBCU from licensing film and television content on an [REDACTED ] basis, on a [REDACTED ]
basis, or on any basis other than a [REDACTED


266 Id. at NBCU_PCI_00001457, § 1(h).
267 See supra ¶¶ 33-41.
268 See supra ¶ 58.
269 See supra nn.102, 104.
36

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

] to the consumer,
we likewise find that the provision of such programming content to PCI would constitute a breach of
those contracts to the extent they are permitted under the condition. Our decision does not require any
change in the Final Agreement awarded by the Arbitrator; rather, it simply places the affected
programming content outside of the scope of NBCU’s contractual obligation under the Final
Agreement.270 NBCU is still obligated to license to PCI any other programming content covered by the
Final Agreement that is not restricted by NBCU’s contract provisions with other licensees. Additionally,
we note that if PCI agrees to [REDACTED

] (i.e., any programming content subject to the [REDACTED
]
discussed above) [REDACTED
],271 NBCU could provide the affected
content to PCI without breaching its contractual obligations to other licensees.
62.
Furthermore, we note that NBCU has licensing agreements with numerous OVDs that
offer transactional EST and VOD services, including Apple (iTunes), Amazon, Best Buy, Blockbuster,
Google (YouTube), Microsoft (xBox), Samsung, Sony, and Vudu.272 NBCU’s licensing agreements with
these OVDs impose similar [REDACTED
] designed to ensure that their exploitation of film
and television programming comports with NBCU’s obligations under other licensing agreements.273
Specifically, these agreements generally provide that the [REDACTED
].274 Thus, our decision
herein puts PCI on par with these OVDs.


270 See NBCU Petition at 25; see also PCI Phase 2 Rebuttal Brief at 15 (“If the Arbitrator were to decide that NBCU
has established a Contractual Impediment Defense to any particular contract to which NBCU is a party, then the
result would be a hold back of that content, pursuant to which NBCU would be relieved of any contractual
obligation to provide it to PCI.”).
271 See supra n.113.
272 See generally NBCU Exs. 40A-Z.
273 See NBCU Phase 1 Opening Brief at 21-22; Wunderlich Phase 1 Expert Report at ¶¶ 48-51 and Ex. F, Lamprecht
Phase 1 Declaration at ¶ 24-29.
274 See e.g., [REDACTED
]NBCU
Ex. 40C, at NBCU_PCI_00001788, § 3(c)(ii) [REDACTED
]; at
NBCU_PCI_00001809, Ex. A-2 [REDACTED
]; and at NBCU_PCI_00001814, Ex. A-7 [REDACTED
]; [REDACTED
] NBCU Ex. 40X, at NBCU_PCI_00003943 [REDACTED
]; at NBCU_PCI_00003964, Ex. A-3 [REDACTED
]; and at NBCU_PCI_00003968, Ex A-7 [REDACTED
].
37

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

B.

PCI’s Partial Appeal

63.
The Comcast/NBCU Order conditions provide that, “[i]f the arbitrator finds that one
party’s conduct, during the course of the arbitration, has been unreasonable, the arbitrator may assess all
or a portion of the other party’s costs and expenses (including reasonable attorney’s fees) against the
offending party.”275 During the arbitration, PCI requested that the Arbitrator assess against NBCU all of
the costs, expenses, and attorneys’ fees incurred by PCI in connection with the arbitration, which totaled
[REDACTED ].276 The Arbitrator denied PCI’s cost-shifting request, concluding that no
“unreasonable conduct” occurred.277 The Arbitrator noted that “this was a complex, hard fought and
time-pressured legal proceeding where both sides were represented by skilled and sophisticated counsel”
and found that “the attorneys generally acted cooperatively, ethically and professionally with one
another” and that “there were no dilatory or improper tactics employed by either side.”278
64.
PCI appeals the Arbitrator’s denial of its cost-shifting request, arguing that, “[a]s a result
of various unreasonable positions taken by NBCU throughout the proceedings, [PCI] diverted significant
resources that could have been used to employ additional staff, expand business opportunities, and
continue innovating, to instead fight NBCU’s various attempts to avoid” its obligations under the
Benchmark Condition.279 While the Arbitrator found that this was a “hard fought” battle but that the
attorneys acted “ethically,” PCI submits that there is no justifiable reason that NBCU should have
engaged in the “battle” detailed in PCI’s cost-shifting declarations and that NBCU’s conduct does not
need to be “unethical” to be “unreasonable.”280 According to PCI, the positions taken by NBCU were
“blatantly unreasonable” and contrary to the plain language and intent of the Comcast/NBCU Order.281
65.
Based on our review of the record, we find no basis for concluding that NBCU engaged
in “unreasonable conduct” during the course of the arbitration that would warrant grant of PCI’s cost-
shifting request. This proceeding raised complex issues regarding the proper interpretation of the
Benchmark Condition, whether PCI’s unique business model is [REDACTED], and whether NBCU’s
provision of certain films and TV programs to PCI would breach other NBCU licensing agreements. The
complexity of this proceeding is compounded by the fact that PCI’s online service, which PCI itself
characterizes as “ground breaking,”282 [REDACTED ] and there remain unanswered questions about
the service. As the party seeking to recover costs, expenses, and attorneys’ fees, PCI carries the burden of
proof that “unreasonable” conduct occurred. PCI has not met this burden. We think that “unreasonable
conduct” requires more than making arguments or taking positions that ultimately are unproven or are not
supported by the evidence. Rather, a finding of unreasonable conduct requires evidence that a party acted
in bad faith, engaged in dilatory or improper tactics, or pressed arguments that were plainly frivolous.283


275 Comcast/NBCU Order, 26 FCC Rcd at 4367, App. A, § VII.B.10, and 4370, App. A, § VIII.5.
276 See Award at 11; see also PCI Second Cost-Shifting Declaration at ¶¶ 101-120.
277 See Award at 12.
278 Id. at 11-12.
279 PCI Partial Appeal at 5-6.
280 Id. at 7; see PCI Reply at 23.
281 PCI Partial Appeal at 7; see PCI Reply at 20-21.
282 PCI Partial Appeal at 3.
283 See NBCU Opposition at 11 n.41 (citing 28 U.S.C. §1927 (allowing fee awards for costs incurred where a party
“multiplies the proceedings in any case unreasonably and vexatiously”) and Cruz v. Savage, 896 F.2d 626, 634 (1st
Cir. 1990) (upholding fee award where a party unreasonably prolonged proceedings to a point “beyond which zeal
[became] vexation”)).
38

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

We cannot conclude based on the particular facts and circumstances of this case that the positions taken
by NBCU were “blatantly unreasonable” or that it employed dilatory or improper tactics. Below we
address PCI’s specific arguments in support of its cost-shifting request.
66.
First, we reject PCI’s argument that NBCU was unreasonable in disputing whether PCI
was a Qualified OVD.284 In support, PCI states that it provided NBCU substantial evidence that it was a
Qualified OVD.285 PCI asserts that NBCU initially challenged PCI’s status as a Qualified OVD based
solely on the fact that PCI had declined to disclose its peer deal to NBCU, even though NBCU had no
right under the Benchmark Condition to insist on such disclosure.286 We disagree with PCI’s assertion
that NBCU’s “demand for an upfront look at the Benchmark Agreement was a plainly dilatory tactic.”287
We note that the Media Bureau issued a Public Notice in March 2012 seeking comment on
Comcast/NBCU’s request for clarification that OVDs seeking online video programming under the
Benchmark Condition are required to disclose their peer programming deals to NBCU.288 The Media
Bureau stated therein that it “tentatively agrees that the Benchmark Condition contemplates that OVDs
seeking access to C-NBCU programming will disclose the relevant peer programming deal to the extent
necessary to enable C-NBCU to carry out its obligations under the Condition.”289 The Media Bureau also
tentatively agreed that clarification of the Benchmark Condition is needed because the Benchmark
Condition does not explicitly specify the manner in which the disclosure will be made.290 Accordingly, to
the extent that NBCU’s challenge to PCI’s status as a Qualified OVD was based on PCI’s failure to
disclose the peer deal to NBCU or a possible lack of clarity in the Benchmark Condition on this issue, we
find that NBCU’s position was not unreasonable.291
67.
PCI further argues that, even after it provided the Benchmark Agreement to NBCU in
late March 2012 pursuant to the Confidentiality Agreement and Protective Order, NBCU continued to
dispute PCI’s status as a Qualified OVD.292 NBCU asserts in response that it questioned PCI’s status as a
Qualified OVD based on representations in an attachment to the [REDACTED] peer deal and various


284 See PCI Partial Appeal at 6; PCI First Cost-Shifting Declaration at 3.
285 See PCI First Cost-Shifting Declaration at 4-6. Specifically, PCI indicates that it notified NBCU in July 2011
that it had entered into an [REDACTED ] with a peer studio which covers [REDACTED ]; that PCI’s
October 7, 2011 Notice of Intent to Request Arbitration expressly represented that PCI is a Qualified OVD; and that
PCI’s October 11, 2011 Confidential Summary to the Commission also expressly represented that PCI was a
Qualified OVD. See id. PCI also cites a [REDACTED
] confirming its agreement with PCI and
its production of [REDACTED

]. See id. at 10-11; PCI Reply
at 11; see also [REDACTED
] at PCI 000084.
286 See PCI First Cost-Shifting Declaration at 6-7; see also Letter from David P. Murray, Willkie Farr & Gallagher
LLP, Counsel for NBCUniversal Media LLC, to Paris N. Earp, Commercial Case Manager, American Arbitration
Association (Nov. 4, 2011) (arguing that NBCU should be given access to the peer deal).
287 PCI Partial Appeal at 7; PCI First Cost-Shifting Declaration at ¶ 26.
288 See Public Notice, Media Bureau Seeks Comment on Whether Comcast-NBCU Benchmark Condition Needs
Clarification and Whether a Proposed Third Protective Order for Compliance Should Be Adopted, DA 12-394
(March 13, 2012) (“Public Notice”).
289 Id.
290 See id.
291 We are not addressing or prejudging the issues raised in the Public Notice at this time. Rather, we are simply
citing the Public Notice for the limited proposition that NBCU’s position on those issues was not unreasonable.
292 See PCI Partial Appeal at 8-11.
39

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

[REDACTED ] that PCI produced during the proceeding, which suggested that PCI [REDACTED
]293 NBCU states that, after it filed its opening brief asserting the Qualified OVD defense
based on this information, and only three days before the Phase 1 hearing, PCI produced written
declarations from its principals [REDACTED
]294 NBCU maintains that, based on this
additional information, it did not pursue the defense after the Phase 1 hearing.295 We cannot conclude
based on the record before us that NBCU acted unreasonably in questioning PCI’s status as a Qualified
OVD. As noted above, the Comcast/NBCU Order specifically contemplates that there may be reasonable
disputes as to whether an OVD is a Qualified OVD and that such disputes will be addressed in Phase 1 of
the hearing.296 While the record shows that PCI provided NBCU with evidence that it was a Qualified
OVD,297 the record also reflects that the Benchmark Agreement and PCI’s [REDACTED ]contained
arguably contradictory information.298 Most notably, the [REDACTED ] attached to the
Benchmark Agreement, [REDACTED
299
]300 Although the Arbitrator ultimately concluded that NBCU’s argument was “without
merit and not supported by the evidence,”301 on balance, and taking into account the unique nature of


293 NBCU Opposition at 6-7; NBCU Phase 1 Opening Brief at 6-7. The attachment to the [REDACTED] peer deal
was a [REDACTED
]. See PCI First Cost-Shifting Declaration
at ¶ 46. In this [REDACTED
]. Benchmark Agreement as amended, NBCU Ex. 3, at Ex. F-1 to F-2 (“Benchmark
Agreement”); see also [REDACTED ] at PCI 000034 [REDACTED
]; [REDACTED
] at PCI 000128 [REDACTED
].
294 NBCU Opposition at 7; see also PCI Phase 1 Rebuttal Brief at 8 (“[W]hat [REDACTED

]); Smith Phase 1 Declaration at 29 (explaining that PCI initially proposed that [REDACTED
] licensing agreement); Peyer Phase 1 Declaration at 1-2 (describing PCI’s online [REDACTED
]).
295 See NBCU Opposition at 7; see also Phase 1 Decision at 5 (noting that “no where in NBCU’s extensive Closing
Brief and Proposed Findings is there any mention of its contention that PCI is not a Qualified OVD under the
Benchmark Condition. That therefore is a change, at least in emphasis, from the position asserted in NBCU’s
Opening Brief . . . .”).
296 See supra ¶ 4.
297 See supra n.285.
298 See supra n.293.
299 [REDACTED
]
300 Benchmark Agreement at Ex. F-1 to F-2.
301 Phase 1 Decision at 5.
40

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

PCI’s business model, we believe that NBCU reasonably explored the issue of whether PCI was a
Qualified OVD.
68.
We are also unpersuaded by PCI’s argument that NBCU’s attempt to invoke a defense
under Section 76.1002(b)(1) was unreasonable and vexatious.302 Under Section VII.C.3 of the
Comcast/NBCU Order conditions, NBCU may raise as a defense to a claim under the Benchmark
Condition any of the factors listed in Section 76.1002(b) of the Commission’s rules.303 The factors listed
in Section 76.1002(b)(1) include creditworthiness, financial stability, and standards regarding character
and technical quality.304 NBCU first suggested in a March 16, 2012 letter to the Arbitrator that it might
assert a defense under Section 76.1002(b)(1) if questions existed about PCI’s financial stability, character,
and technical quality.305 In an email to the Arbitrator dated April 5, 2012, NBCU indicated that it did not
intend to pursue this defense.306 We do not believe that raising a possible Section 76.1002(b)(1) defense
and then declining to pursue it just 20 days later constitutes unreasonable and vexatious conduct
warranting cost-shifting.
69.
PCI also argues that NBCU was unreasonable in initially submitting a final offer for the
scope of Comparable Programming, rather than a final offer in the form of a contract for carriage, thereby
conflating the issue concerning the scope of Comparable Programming with its contractual impediment
defense, and arguing that the contractual impediment defense should be resolved in Phase 1 of the
hearing.307 We disagree. The Comcast/NBCU Order specifically contemplates that there may be
reasonable disputes as to the scope of Comparable Programming to which an OVD is entitled and
provides that, if there is such a dispute, parties will submit at the commencement of the arbitration final
offers for the scope of Comparable Programming, rather than final offers for carriage.308 NBCU disputed
the scope of Comparable Programming and therefore properly submitted at the commencement of the
arbitration a final offer for the scope of Comparable Programming.309 Moreover, as we discuss in detail
above,310 this proceeding presents difficult questions as to whether PCI’s business model is
[REDACTED] and whether NBCU’s provision of certain films and TV programs to PCI would breach
other NBCU licensing agreements. Under the circumstances of this case, we do not think NBCU was
unreasonable in arguing that there was a link between the scope of Comparable Programming and its
contractual impediment defense and that the contractual impediment defense should be addressed in


302 See PCI First Cost-Shifting Declaration at 14.
303 See Comcast/NBCU Order, 26 FCC Rcd at 4368, App. A, § VII.C.3.
304 See 47 C.F.R. § 76.1002(b)(1).
305 See Letter from David P. Murray, Willkie Farr & Gallagher LLP, Counsel for NBCUniversal Media, LLC, to
Arbitrator Henry J. Silberberg (March 16, 2012), at n.6. In a letter dated March 27, 2012 letter, NBCU explained
that its inquiries under Section 76.1002(b) “will be limited to whether PCI has sufficient financial stability and
creditworthiness to indemnify NBCUniversal against any breach of contract, copyright infringement, or other
similar claims that may be asserted against NBCUniversal based on PCI’s programming demands and its service.”
Letter from David P. Murray, Willkie Farr & Gallagher LLP, Counsel for NBCUniversal Media, LLC, to Jean
MacHarg, Patton Boggs LLP, Counsel for Project Concord, Inc. (March 27, 2012).
306 Email from Lindsay Addison, Willkie Farr & Gallagher LLP to Arbitrator Henry J. Silberberg (Apr. 5, 2012,
4:53 PM).
307 See PCI First Cost-Shifting Declaration at 17-23.
308 See supra ¶ 4.
309 See supra n.37.
310 See supra ¶¶ 33-41.
41

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

Phase 1.311 Furthermore, we note that both parties agreed, with the Arbitrator’s approval, that evidence
relating to NBCU’s contractual impediment defense should be presented and considered in Phase 1.312
Although the Arbitrator subsequently concluded in the Phase 1 decision that a determination as to
whether NBCU’s contractual impediment defense has been proven should be deferred to Phase 2,313 we
do not believe that PCI was materially harmed by the presentation and consideration of evidence on the
contractual impediment defense during Phase 1.314
70.
Similarly, we reject PCI’s argument that NBCU was unreasonable in arguing that the
definition of Video Programming excludes first-year films.315 Although we conclude herein that the
definition of Video Programming includes first-year films,316 we disagree with PCI’s contention that
“what NBCU asserted in support of its tortured reading of that definition was most egregiously
unreasonable.”317 Rather, we find that both parties offered arguments in good faith supporting their
interpretations of the relevant language.
71.
In addition, PCI argues that, in disregard of the Comcast/NBCU Order conditions and the
Arbitrator’s Phase 1 Decision, NBCU failed to make a final offer for the Comparable Programming


311 As noted above, NBCU’s Petition seeks clarification of whether the contract defenses authorized under the
Benchmark Condition should be decided during Phase 1 or Phase 2 of an arbitration. See supra n.59. Although we
decline to address this issue at this time, we acknowledge that there may be valid arguments as to why contract
defenses should be addressed in Phase 1 along with the scope of Comparable Programming.
312 See supra n.40. We also reject PCI’s argument that “it was never necessary to have addressed NBCU’s
Contractual Impediment Defense at all . . . because any suggestion that a third party licensee will assert a rights
conflict is pure speculation and the [REDACTED
] rights provided in PCI’s Final Offer
make any such claim highly [improbable].” PCI Second Cost-Shifting Declaration at 15. NBCU properly raised a
contractual impediment defense and, as discussed above, we think the appropriate inquiry under such a defense is
whether providing the programming at issue “would constitute a breach of a contract,” not whether a third party may
or may not choose to exercise its right to enforce the contract. See supra ¶¶ 28-30.
313 See supra n.40.
314 We are likewise unpersuaded by PCI’s argument that NBCU acted unreasonably by “retrying” its contractual
impediment defense in Phase 2. See PCI Second Cost-Shifting Declaration at 17-20. PCI asserts that, despite the
fact that NBCU’s contractual impediment defense was tried during Phase 1and that the Arbitrator indicated that he
did not expect to receive any additional evidence on the defense, NBCU proffered never-produced documents and
“extensive additional testimony” from two witnesses with its Phase 2 Opening Statement. Id. at 17-18; see also
Email from Arbitrator Henry J. Silverberg to David Murray and Jean MacHarg (May 25, 2012, 9:43 PM)
(describing the additional evidence and denying PCI’s request that it be stricken from the record, noting that, while
he “did not expect the presentation of any new evidence” on the contractual impediment defense, he did not find the
documents to be particularly significant and was not likely to afford any such new evidence any meaningful weight).
PCI also asserts that NBCU spent considerable time at the Phase 2 hearing retrying its contractual impediment
defense. See PCI Second Cost-Shifting Request at 19. The Arbitrator found, however, that PCI was not forced to
retry anything and that there was just “minor supplementation of the record that was previously created in phase 1
and was purposefully left undecided until phase 2.” Hr’g Tr. at 1046:21-1047:3. The Arbitrator further found that
“the additional time devoted by both parties in Phase 2 in presenting further testimony relating to the Contractual
Impediment Defense did not involve any unreasonable conduct . . . and such testimony and related arguments were
in fact helpful in clarifying the underlying facts and assisting me in reaching the ruling set forth above in PCI’s
favor.” Award at 12. We concur with the Arbitrator’s finding that NBCU’s presentation of this additional evidence
did not amount to unreasonable conduct warranting cost-shifting. See id.
315 See PCI First Cost-Shifting Declaration at 23-24.
316 See supra ¶¶ 17-24.
317 PCI Reply at 21; see also PCI First Cost-Shifting Declaration at ¶¶ 85-87.
42

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

selected by the Arbitrator.318 Rather, PCI states, NBCU’s Phase 2 Final Offer reverted to offering only
the programming available under its Phase 1 Final Offer, which flouted the Arbitrator’s decision in Phase
1 that PCI was entitled to current film and television titles.319 The record indicates that NBCU in fact
submitted a final offer in the form of a contract for carriage that was a [REDACTED
].320 NBCU’s Phase 2 pleadings and testimony at the Phase 2 hearing made clear,
however, that NBCU was interpreting the Benchmark Agreement, and consequently its final offer,
[REDACTED

].321
Specifically, NBCU made clear that it did not consider the Benchmark Agreement to be an [REDACTED
]
,322 but rather interpreted it to afford [REDACTED
].323 The Arbitrator found
that NBCU’s interpretation of its final offer was effectively [REDACTED
].324 NBCU asserts in response
that the provision of current film and television content to PCI implicates numerous other NBCU
licensing agreements, which is the very basis of NBCU’s contractual impediment defense.325 Rather than
flouting the Arbitrator’s decision, NBCU maintains that it was waiting for him to rule on the contract
defense as part of the Phase 2 proceeding.326 We are not persuaded based on the record before us that
NBCU’s actions in this regard amount to unreasonable conduct. NBCU complied with the Phase 1
Decision by submitting its Phase 2 Final Offer. Moreover, NBCU was candid throughout the Phase 2


318 See PCI Second Cost-Shifting Declaration at 8-10; see also Comcast/NBCU Order, 26 FCC Rcd at 4368, App. A,
§ VII.C.2 (“At the conclusion of phase 1, the parties shall submit their final offers for agreement based on the
Comparable Programming chosen by the arbitrator.”).
319 See PCI Second Cost-Shifting Declaration at 8-9; PCI Partial Appeal at 7.
320 See Award at 5. The only [REDACTED
] between NBCU’s final offer and the Benchmark Agreement is
that NBCU’s final offer also included a [REDACTED
]. See id. In the Phase 1 Decision, the
Arbitrator noted that NBCU had requested an order requiring that the indemnity provision set forth in Section
IV.A.5 of the Comcast/NBCU Order conditions be included in the Phase 2 final offers and stated that the requested
indemnity provision would be considered in Phase 2 in the event that NBCU’s contractual impediment defense were
not proven. See Phase 1 Decision at 4. The Arbitrator further stated that the parties should consider including the
requested indemnity provision in their respective Phase 2 final offers on a conditional basis. See id.
321 See Award at 6.
322 See supra n.76.
323 See Award at 8-9. [REDACTED] of the Benchmark Agreement provides that [REDACTED
]. See Benchmark Agreement at [REDACTED].
NBCU argued that because this language gives [REDACTED
], the Benchmark Agreement [REDACTED
]. See NBCU Phase 2 Opening Brief at
5-6; Madoff Phase 2 Report at 9-10; NBCU Phase 2 Rebuttal Brief at 2-3. By contrast, PCI argued that this
language simply means that [REDACTED
]. See PCI Phase 2 Opening Brief at 8. PCI also provided evidence
that [REDACTED
]. See id.
324 See Award at 6.
325 See NBCU Opposition at 8; see also NBCU Phase 1 Post-Hearing Brief at 13-26.
326 See NBCU Opposition at 8.
43

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

proceeding regarding its differing interpretation of the Benchmark Agreement.327 We do not believe that
its actions reflect bad faith or dilatory or improper tactics.328
72.
In sum, we have reviewed PCI’s allegations of unreasonable conduct and find no basis
for concluding that NBCU acted in bad faith or engaged in dilatory or improper tactics. We therefore
conclude that PCI’s cost-shifting request must be denied.

IV.

CONCLUSION

73.
For the reasons set forth above, we conclude that first-year films are not excluded from
the scope of the Benchmark Condition. We also conclude that NBCU has established by a preponderance
of the evidence that licensing certain films and TV programs to PCI would constitute a breach of various
NBCU licensing agreements that are “consistent with reasonable, common industry practice,” but only to
the extent that consumers use [REDACTED
] to access the content. In
addition, we find no basis for granting PCI’s cost-shifting request. Accordingly, we grant NBCU’s
Petition for de novo review in part and deny it in part, and we deny PCI’s Partial Appeal.

V.

ORDERING CLAUSES

74.
Accordingly,

IT IS ORDERED

that, pursuant to Sections 4(i) and 4(j) of the
Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i), (j), the Petition for De Novo Review
filed by NBCUniversal Media, LLC

IS GRANTED IN PART AND DENIED IN PART

and the Partial
Appeal filed by Project Concord, Inc.

IS DENIED

.
75.
This action is taken pursuant to authority delegated by Section 0.283 of the
Commission’s rules, 47 C.F.R. § 0.283.
FEDERAL COMMUNICATIONS COMMISSION
William T. Lake
Chief, Media Bureau


327 See NBCU Phase 2 Opening Brief at 2-9; Madoff Phase 2 Expert Report at 9-12; Wunderlich Phase 2 Expert
Report at 5-7.
328 We have also reviewed PCI’s various other allegations that NBCU acted unreasonably throughout the arbitration
proceeding. For example, PCI argues that NBCU acted unreasonably in (i) failing to call Scott Gartner, NBCU’s
Senior Vice President, Business and Legal Affairs, as a witness during the hearing; (ii) arguing that it should be
allowed to seek pre-approval of PCI’s service under the [REDACTED] in its licensing agreement with
[REDACTED] and to [REDACTED
]; and (iii) arguing that it is entitled to discriminate against
PCI. See PCI Second Cost-Shifting Request at 10-12, 13-14, 18. We find that these allegations do not establish that
NBCU engaged in unreasonable conduct warranting any cost-shifting.
44

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

APPENDIX

Benchmark Condition and Other Relevant Provisions and Definitions

from the Comcast/NBCU Order

Conditions

I.

DEFINITIONS

“Benchmark Condition” means that an OVD has entered into at least one agreement for Video
Programming with a Broadcast Network, Cable Programmer, Production Studio or Film Studio that is not
an Affiliate of the OVD.
“Comparable Programming” means Video Programming that is reasonably similar in kind and amount.
For purposes of determining whether Video Programming constitutes Comparable Programming, the
parties or an arbitrator, as applicable, shall consider the following factors, among others:
(i)
the number of channels and/or shows; and
(ii)
the similarity of the value of the Video Programming, as evidenced by ratings, affiliate fees
and/or advertising revenues and the time elapsed since the programming was first
distributed.329
The following categories of Video Programming are not Comparable Programming (among others):330
(i)
programming made available for presentation a day or more after it is first presented to
viewers is not comparable to programming made available for presentation the first day;
(ii)
sports programming is not comparable to non-sports programming;
(iii)
local news programming is not comparable to programming that is not local news
programming;
(iv)
prior season programming is not comparable to original, first-run programming;
(v)
broadcast programming is not comparable to cable programming;
(vi)
Children’s Programming is not comparable to programming that is not Children’s
Programming (defined, only with regard to Section XIII, as programming originally produced
and aired primarily for an audience of children 12 years old or younger);
(vii)
Films are not comparable to non-Film programming; and


329 If an agreement triggering the Benchmark Condition involves substantially all of a Person’s linear channel(s),
then the C-NBC Programmer may require the OVD to license a bundle of substantially all of C-NBCU’s linear
channels (plus other rights if included in the triggering agreement) as the Comparable Programming. If the C-
NBCU Programmer opts to license less than the bundle described above, then the parties or arbitrator (as applicable)
shall take into account any pricing adjustments from the bundled price necessary to reflect fair market value.
330 Programming shall not cease to be comparable solely because packages of programming contain some
programming that is not comparable. For example, a channel, a bundle of channels or a bundle of programs may
contain both sports and non-sports programming and still be eligible to trigger the Benchmark Condition or serve as
Comparable Programming provided by a C-NBCU Programmer. If a bundle contains a mix of programming, some
of which is comparable and some of which is not comparable, the C-NBCU Programmer shall satisfy a demand
under the Benchmark Condition to the extent possible by providing programming that is similar in amount to the
programming triggering the Benchmark Condition to the extent that programming is comparable to programming of
C-NBCU Programmers (e.g., if an OVD obtains 10 shows triggering the Benchmark Condition, 5 of which are
comparable to C-NBCU programming, C-NBCU Programmers would have to provide 5 shows).
45

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

(viii)
Films in the following categories are not comparable to each other: (x) Films less than five
years from initial theatrical distribution, and (y) Films over five years from initial theatrical
distribution.
“Economic Model” means the primary method by which the Video Programming is monetized (e.g., ad-
supported, subscription without ads, subscription with ads, electronic sell through (“EST”) or
PPV/TVOD) reflected in the terms of the agreement(s) for the Comparable Programming.
“Film” means a feature-length motion picture that has been theatrically released.
“Film Studio” means Warner Bros. Entertainment, Fox Filmed Entertainment, Paramount Motion
Pictures, Sony Pictures Entertainment, Walt Disney Motion Pictures Group, and their managed or
controlled subsidiaries, successors and assigns, and any other Person that is one of the top five
distributors (other than a C-NBCU Programmer) of Films by U.S. box office gross revenue in the latest
declared financial year.
“Online Video Programming” means Video Programming that any C-NBCU Programmer has the right to
enable others (including but not limited to other MVPDs and OVDs, but not including solely Comcast or
C-NBCU) to display by means of the (i) Internet or (ii) other IP-based transmission path provided by a
Person other than the OVD.
“OVD” means any entity that provides Video Programming by means of the (i) the Internet or other IP-
based transmission path provided by a Person other than the OVD. An OVD does not include an MVPD
inside its MVPD footprint or an MVPD to the extent it is offering Online Video Programming as a
component of an MVPD subscription to customers whose homes are inside its MVPD footprint.
“Production Studio” means Warner Bros. Television, 20th Century Fox Television, Paramount/CBS
Television Studios, Sony Pictures Television, Disney-ABC Studios, and their managed or controlled
subsidiaries, successors and assigns, and any other Person that is one of the top five producers (other than
a C-NBCU Programmer) of Video Programming for distribution through Broadcast Networks or Cable
Programmers by U.S. production revenue in the latest declared financial year.
“Qualified OVD” means any OVD that meets either or both of (i) the MVPD Price Condition and (ii) the
Benchmark Condition.
“Video Programming” means programming provided by, or generally considered comparable to
programming provided by, a television broadcast station or cable network, regardless of the medium or
method used for distribution, and includes but is not limited to: programming prescheduled by the
programming provider (also known as scheduled programming or a linear feed); programming offered to
viewers on an on-demand, point-to-point basis (also known as video on demand (“VOD”), pay per view
(“PPV”) or transactional video on demand (“TVOD”)); short programming segments (also known as
clips); programming that includes multiple video sources (also known as feeds, including camera angles);
programming that includes video in different qualities or formats (including high-definition and 3D); and
Films for which a year or more has elapsed since their theatrical release.
46

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

IV.

ONLINE CONDITIONS

A.

ONLNE PROGRAM ACCESS

2.

Qualified OVDs:

b.
Benchmark Condition:
(i)
For any Qualified OVD that meets the Benchmark Condition,331
C-NBCU Programmers shall provide Online Video Programming sought
by the OVD that constitutes Comparable Programming.332
(ii)
The price, terms and conditions shall be the economic equivalent
of the price, terms and conditions the OVD paid for the Comparable
Programming. The economic equivalent should take account of (among
other things) any difference in the value of the programming being
sought relative to the Comparable Programming. In addition, economic
equivalent terms and conditions shall consist of the same basic Economic
Model(s) for the Comparable Programming.
(iii)
C-NBCU Programmers shall not at any one time be required to
be a party to more agreements triggered by Experimental Deals than the
greatest number of agreements then effective between a Broadcast
Network, Cable Programmer, Production Studio or Film Studio
(including multiple Persons if they are Affiliated) and all OVDs.
3.
If negotiations fail to produce a mutually acceptable set of price, terms and
conditions for Online Video Programming under Sections IV.A.1 or IV.A.2 above, an MVPD or
Qualified OVD, as applicable, may choose to submit a dispute to commercial arbitration in accordance
with the procedures set forth in Section VII below. A Claimant may bring a single arbitration for related
claims under Section IV.A.1 and IV.A.2 and/or demands under different agreements subject to the
Benchmark Condition.
5.
For claims to programming made under Section IV, if a reasonable dispute exists
or arises regarding whether a C-NBCU Programmer has the right to grant an OVD the right to the Video
Programming at issue, the C-NBCU Programmer may require the Qualified OVD to indemnify it and
hold it harmless against any breach of contract, tort, copyright violation or other claim arising out of any
lack of right of the C-NBCU Programmer to grant the OVD the right to Video Programming.

B.

RESTRICTIONS REGARDING EXCLUSIVITY/WINDOWING

1.
No C-NBCU Programmer shall enter into any agreement or arrangement, or
enforce any agreement or arrangement entered into after December 3, 2009, which forbids, limits, or
creates economic incentives to limit the distribution of such Video Programming through OVDs;


331 As long as the Benchmark Condition is met at the time a request for programming is made under this Order, it
shall continue to be satisfied regardless of any breach or termination of the triggering agreement.
332 A Qualified OVD that has obtained programming under the Benchmark Condition shall become eligible for
additional Comparable Programming only to the extent it enters into more than one agreement (i) with different
programmers for programming subject to different Economic Models or in different categories of programming
(e.g., broadcast, cable or Film) or (ii) with the same programmer for additional programming.
47

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

provided that nothing in this Section IV.B.1 prohibits a C-NBCU Programmer from entering into or
enforcing agreements or arrangements consistent with reasonable, common industry practice. Evidence
relevant to what constitutes reasonable, common industry practice may include (among other things) the
contracting practices of a C-NBCU Programmer prior to December 3, 2009 and/or the contracting
practices of peer companies.

VII.

COMMERCIAL ARBITRATION REMEDY

B.

RULES OF ARBITRATION

10.
If the arbitrator finds that one party’s conduct, during the course of the
arbitration, has been unreasonable, the arbitrator may assess all or a portion of the other party’s costs and
expenses (including reasonable attorney fees) against the offending party.

C.

PROVISIONS APPLICABLE TO ARBITRATIONS UNDER SECTION IV
(ONLINE)

1.
In the case of an arbitration under Section IV of these Conditions, the arbitration
shall take place in two phases if there is a reasonable dispute regarding one or more of the following: (i)
whether an OVD is a Qualified OVD; (ii) what Comparable Programming a Qualified OVD is entitled to
(for claims under the Benchmark Condition only); and (iii) whether any of the defenses in Section VII.C.3
below would defeat a claim (provided that, with respect to Section VII.C.3, the first phase shall concern
defenses based on 47 C.F.R. § 76.1002(b)(1) only). In phase 1, the arbitrator shall determine, as
applicable, the disputes raised in sub-paragraphs (i) through (iii). In phase 2, the arbitrator shall choose
the final offer of the party which most closely approximates the fair market value of the programming
carriage rights at issue, as defined in Section IV.A.2, above.
2.
In the case of an arbitration under the Benchmark Condition, if there is a dispute
about what Comparable Programming a Qualified OVD is entitled to, the parties shall submit their final
offers for the scope of Comparable Programming at the commencement of the arbitration, as provided
under Section IV.A. The arbitrator shall decide which of the two offers for the scope of Comparable
Programming most closely approximates the appropriate Comparable Programming. At the conclusion of
phase 1, the parties shall submit their final offers for agreements based on the Comparable Programming
chosen by the arbitrator.
3.
In the case of an arbitration under Section IV of these Conditions, it shall be a
defense for Comcast or C-NBCU to demonstrate by a preponderance of the evidence that any of the
following reasonably justifies denying the Online Video Programming to a particular Qualified OVD: (i)
any of the factors listed under 47 C.F.R § 76.1002(b) as of the date of this Order; or (ii) that providing the
Online Video Programming to the particular Qualified OVD would constitute a breach of a contract to
which Comcast or NBCU is a party (provided that any provision prohibited under Section IV.B shall not
be a defense). For claims under the Benchmark Condition, there shall be a presumption against any
defense based on the provisions of part (i) of this paragraph.
4.
The arbitrator shall determine allowable discovery and permissible evidence.

E.

REVIEW OF FINAL AWARD BY THE COMMISSION

3.
The Media Bureau or Commission, as appropriate, may award the winning party
costs and expenses (including reasonable attorney fees) to be paid by the losing party, if the Media
Bureau or Commission, as appropriate, considers the appeal or conduct by the losing party to have been
48

Federal Communications Commission

DA 12-1958

REDACTED VERSION – RELEASED DECEMBER 5, 2012

unreasonable. Such an award of costs and expenses may cover both the appeal and the costs and
expenses (including reasonable attorney fees) of the arbitration.
49

Note: We are currently transitioning our documents into web compatible formats for easier reading. We have done our best to supply this content to you in a presentable form, but there may be some formatting issues while we improve the technology. The original version of the document is available as a PDF, Word Document, or as plain text.

close
FCC

You are leaving the FCC website

You are about to leave the FCC website and visit a third-party, non-governmental website that the FCC does not maintain or control. The FCC does not endorse any product or service, and is not responsible for, nor can it guarantee the validity or timeliness of the content on the page you are about to visit. Additionally, the privacy policies of this third-party page may differ from those of the FCC.